A REPORT
on
COMPETITION SCENARIO IN VIETNAM
Table of Content
Introduction ............................................................................................... 3
1.1. Country brief profile ..................................................................................................... 3
1.2. Recent Economic Performance, Structure and Other Characteristics ............ 4
1.3. Economic Policies ......................................................................................................... 9
1.3.1. Industrial policy .......................................................................................................... 10
1.3.2. Trade policy ................................................................................................................ 13
1.3.3. Investment policy ........................................................................................................ 15
1.3.4. Privatisation policy ..................................................................................................... 17
1.4. Importance of competition in the overall economic policy regime ................. 22
Market structure and competition ........................................................... 25
2.1. The overall picture....................................................................................................... 25
2.2. Market structure and competition in some sectors.............................................. 34
2.2.1. Manufacturing ............................................................................................................. 35
2.2.1.1. Plastics ................................................................................................................. 35
2.2.1.2. Automobiles ......................................................................................................... 36
2.2.1.3. Motorcycles.......................................................................................................... 37
2.2.1.4. Garment and textile .............................................................................................. 39
2.2.1.5. Cement ................................................................................................................. 41
2.2.1.6. Fertilisers.............................................................................................................. 42
2.2.1.7. Steel...................................................................................................................... 43
2.2.1.8. Sugar .................................................................................................................... 44
2.2.1.9. Soft drinks, beverages, wines, spirits and coffee ................................................. 45
2.2.1.10. Cigarettes ........................................................................................................... 47
2.2.1.11. Pharmaceuticals ................................................................................................. 47
2.2.2. Services and utilities ................................................................................................... 49
2.2.2.1. Electricity ............................................................................................................. 49
2.2.2.2. Telecommunication.............................................................................................. 50
2.2.2.3. Transportation ...................................................................................................... 52
2.2.2.4. Financial services ................................................................................................. 54
2.2.3. Restructuring trends .................................................................................................... 55
2.3. Barriers to competition............................................................................................... 57
Sectoral policies....................................................................................... 62
3.1. Electricity ....................................................................................................................... 63
3.2. Telecommunications .................................................................................................... 67
3.3. Financial services ........................................................................................................ 70
3.3.1. Banking ....................................................................................................................... 70
3.3.2. Insurance ..................................................................................................................... 72
3.4. Pharmaceuticals ........................................................................................................... 74
Consumer protection ............................................................................... 79
4.1. Laws and institutions relevant to consumer protection in Vietnam ................ 80
1
4.1.1. Ordinance on the Protection of Consumers’ Interests ................................................ 80
4.1.2. Other relevant important legislations .......................................................................... 85
4.2. The state of consumer welfare and prevalent consumer concerns .................. 87
4.3. A hybrid approach between competition and consumer protection ................ 92
Anticompetitive practices ........................................................................ 94
5.1. Horizontal arrangements ........................................................................................... 94
5.1.1. Price fixing .................................................................................................................. 94
5.1.2. Market allocating and customer sharing arrangements .............................................. 95
5.1.3. Refusal to deal............................................................................................................. 96
5.1.4. Agreement to output restriction .................................................................................. 96
5.1.5. Bid rigging (or Collusive tendering) ........................................................................... 97
5.2. Vertical arrangements ................................................................................................ 98
5.2.1. Tied selling.................................................................................................................. 99
5.2.2. Exclusive Dealing ....................................................................................................... 99
5.2.3. Resale price maintenance .......................................................................................... 100
5.3. Abuse of dominance and other structural offences - competition-restricting
mergers and acquisitions (M&As) ................................................................................. 101
5.3.1. Price Discrimination ................................................................................................. 101
5.3.2. Predatory pricing ....................................................................................................... 101
5.3.3. Competition-restricting mergers and acquisitions .................................................... 101
Perspectives on Competition Policy...................................................... 104
6.1. Backgrounds and Methodology .............................................................................. 104
6.2. Survey Results ............................................................................................................. 105
6.3. Main survey findings ................................................................................................. 106
6.3.1. Findings about the prevalence of anti-competitive practices in Vietnam ................. 106
Prices .............................................................................................................................. 106
Tied Selling ..................................................................................................................... 109
Exclusive Dealings .......................................................................................................... 109
Unfair Advertisement ...................................................................................................... 109
Bidding Collusion ........................................................................................................... 110
Collusive agreements in associations ............................................................................. 110
Difficulties in Doing Business ......................................................................................... 110
6.3.2. Findings about the need for competition policy and law in Vietnam ....................... 111
Understanding of the Competition Law .......................................................................... 111
Understanding of the other policies and legislations relevant to competition ............... 114
The Competition Law of Vietnam ........................................................ 115
Conclusion ............................................................................................. 119
2
Chapter 1
Introduction
1.1. Country brief profile
The Socialist Republic of Vietnam occupies an area of 330,991 square kilometres on the
Indochina peninsula, bordering China, Laos, Cambodia, the Gulf of Thailand, the Gulf of
Tonkin, and the South China Sea. The topography consists of hills and densely forested
mountains, with level land covering no more than 20 percent. The northern part of the country
consists of highlands and the Red River Delta; the south is divided into coastal lowlands, Dai
Truong Son (central mountains) with high plateaus, and the Mekong River Delta. The climate is
tropical and monsoonal; humidity averages 84 percent throughout the year. Annual rainfall
ranges from 120 to 300 centimetres, and annual temperatures vary between 5°C and 37°C.
Vietnam has a total 4,567 kilometres of land boundaries, inclusive of 1,150 kilometres
bordering Cambodia, 1,350 kilometre with China, and 2,067 kilometres with Laos. The coastline
is 3,260 kilometres long, exclusive of islands.
The population ranked fourteenth in the world with 82,689,518 people in the year 2004
(i.e. density is around 264/km2). Population growth rate is estimated at 1.04% in early 2005.
Age structure: 0-14 years: 27.9% (male 12,065,777/female 11,212,299)
15-64 years: 66.4% (male 27,406,456/female 28,024,250)
65 years and over: 5.8% (male 1,889,585/female 2,937,209)
More than 87% of the population speaks the Vietnamese language, the nation's official
language. Various other languages are spoken by the several minority groups in Vietnam. The
most common of these are Chinese and Khmer. French and Russian is spoken by some, mostly
older Vietnamese, as a second-language. In recent decades, English has become a more popular
language to learn and is increasingly used in business, among other things.
Literacy (age 15 and over can read and write):
Total population – 90.3%
Male - 93.9%
Female - 86.9% (2002)
Vietnam is a one-party communist state, governed by the Communist Party of Vietnam
(CPV), which has a paramount role in both the political and socio-economic policy-making
process. All the most important political and socio-economic development strategies of Vietnam
are outlined in the Resolutions adopted by the CPV in its Congress convened every four year.
3
1.2. Recent Economic Performance, Structure and Other Characteristics
Vietnam is a densely populated, developing country that in the last 30 years has had to
recover from the ravages of war, the loss of financial support from the old Soviet Bloc, and the
rigidities of a centrally planned economy. Substantial progress was achieved since the turning
point of 1986 when the Sixth CPV Congress first initiated the transition to a market economy in
Vietnam by gradually liberalising a lot of economic activities, even though it was not until 1989
that a degree of macroeconomic stability was achieved. Land reform, the removal of interprovincial trade barriers and the state monopoly in trade, the participation of private sector, and
the relaxation of price control were the main cause behind a decade of high growth rates in
1990s.
Vietnam achieved around 8% annual GDP growth from 1990 to 1997. The growth rate
started to slow down in 1996 and two subsequent years as a consequence of the Asian financial
crisis; then peaked again at around 7%-8% from 2000 to 2004, making Vietnam the world's
second-fastest growing economy (See Figure 1.2.1). Government control of the economy and a
nonconvertible currency have protected Vietnam from what could have been a more severe
impact resulting from the East Asian financial crisis. Nonetheless, the crisis, coupled with the
loss of momentum as the first round of economic reforms ran its course, has exposed serious
structural inefficiencies in Vietnam’s economy. Vietnam is still a very poor country with GDP of
around US$38bn in 2004. This translates to merely US$549 per capita (See Figure 1.2.2), which
remains low in comparison with other countries in the region (See Table 1.2.1).
The macroeconomic environment is relatively stable. In the beginning of the economic
reform process, the inflation rate was very high due to the removal of price control over the
majority of products. The inflation has been kept at a low rate since 1992 (See Figure 1.2.3)
because the government has taken attempt not to print money for financing the budget deficit.
However, the inflation rate in 2004 was equal to 9.5%, much higher than the targeted level of 5%
approved by the National Assembly, due to an increase in the imported intermediate goods and
the bird flu outburst in the country. Fiscal deficit stays at a level less than 5% of GDP. The
external debt is controlled at a level of about 40% of GDP.
4
Figure 1.2.1 - Vietnam economy’s growth rate 1987-2003
16
14.5
14
12.8
13.4
13.6
12.6
12.6
12
10
9.5
8.5
7.7
8.7
8
8.8
5.0 6.0
8.3
9.3
7.7
8.2
8.1
5.8
4
3.6
6.9
7.1
7.3
7.7
5.8
5.1
4.7
10.2
9.5
6.8
6
10.5
10.4
10.1
4.8
2.3
2
0
-2
1987
1989
1991
1993
1995
1997
1999
2001
2003
-2.6
-4
Agriculture
Industry
Services
GDP
Source: General Statistical Office of Vietnam
Figure 1.2.2 – Vietnam GDP per capita in current price (USD)
600.0
549
500.0
483
402 417
379 392 378
400.0
439
337
300.0
289
230
200.0
100.0
189
75
84
96
104
144
124 129
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
0.0
GDP per Capita
Source: General Statistical Office of Vietnam
5
Table 1.2.1 – GDP per capita in some selected countries
GDP per capita in current
price in 2002 (USD)
GDP per capita in PPP in
2001(USD)
12090
299
819.0
329
3914
104.0
974.0
20515
439
2043
965.8
19210
1860
2940
1620
8750
1027
3840
22680
2070
6400
4020
Brunei
Cambodia
Indonesia
Laos
Malaysia
Myanmar
Philippines
Singapore
Vietnam
Thailand
China
Source: Human Development Index Report 2003, UNDP
450
39
3.
8
Figure 1.2.3 - Inflation rate
400
300
250
23
1.
8
350
200
50
5.
2
14
.4
12
.6
4.
5
3.
6
9.
2
0.
1
-0
.6
0.
8
4.
0
3.
0
9.
5
34
.7
100
17
.6
67
.5
67
.6
150
0
-50
1987
1989
1991
1993
1995
1997
1999
2001
2003
CPI
Industry was the leading sector of the Vietnam economy during this period. From 1992 to
1997, growth of this sector was 4 to 5 percentage points higher than that of the total GDP. As a
result, the GDP structure as changed remarkably with the expanding of the share of the
secondary sector, at the expense of the primary sector (See Figure 1.2.4)1. Such a transitional
1
Commonly, an economy is composed of three sectors
•
Primary Sector, which includes activities which extract products from the natural environment, like agriculture;
•
Secondary Sector- (manufacturing) which includes activities which transform material resources into goods or
products; and
• Tertiary Sector- (service) which includes activities that produce services rather than goods.
6
transformation is a typical and nearly universal feature accompanying economic development,
especially for agri-based economy at the initial stage of industrialisation.
Figure 1.2.4 – Structural changes in the Vietnamese economy 1986-2004
2004
20.2
39.4
40.4
2002
21.1
38.5
40.5
2000
24.1
36.9
39
1998
26
32.7
41.3
1996
27.8
29.7
42.5
1994
27.4
28.9
43.7
1992
34.9
1991
0%
20%
41.4
23.7
40.5
36
23.5
40%
Primary Sector
Secondary Sector
Tertiary Sector
60%
80%
100%
In terms of ownership structure, before Doi Moi, the economy was run by three types of
firms: State-owned enterprises (SOEs) (national ownership), cooperatives (collective ownership)
and household units of production or service. Cooperatives were seen mainly in agriculture, and
at a lesser extent, in traditional handicrafts and services. With Doi Moi, other types of
enterprises, i.e. private enterprises, foreign-invested enterprises (FIEs), have merged, but until
1990s, such firms have been small in number. FDI flows started in 1988, but a substantial
amount of disbursement was recorded only since 1992. Table 1.2.2 records the share of each of
five types of firms in the 1990s. This table shows that share of household companies is quite
large and has been kept constant at about one-third of GDP. FIEs show an increasing share but
the share of private firms has been unchanged at a low level.
Table 1.2.2 - GDP structure in current price by type of ownership (In Percentage)
1995 1996 1997 1998 1999 2000 2001 2002
Total
Prel.
2003
100
100
100
100
100
100
100
100
100
State
40.2
39.9
40.5
40.0
38.7
38.5
38.4
38.4
39.1
Collective
10.1
10.0
8.9
8.9
8.8
8.6
8.1
8.0
7.5
7.4
7.4
7.2
7.2
7.3
7.3
7.9
8.3
8.2
36.0
35.3
34.3
33.8
32.9
32.3
31.8
31.6
30.7
6.3
7.4
9.1
10.0
12.2
13.3
13.8
13.8
14.5
By ownership
Private
Household
Foreign investment sector
Source: Statistical Yearbook 2004, General Statistical Office
7
Another important feature of Vietnam’s economic reform process has been the increasing
significance of international trade. Throughout the 1990s, exports expanded significantly,
growing by as much as 20-30 in some years. In 1999, exports accounted for 40 of GDP, an
impressive performance in a recovering Asia. Vietnam’s export growth was led by impressive
growth in light manufactured exports (like footwear, textile and garment), which was supported
by the significant influx of foreign direct investment (FDI) in those industries due to the relaxed
trade and taxation regimes. Also remarkable is the strong rise in the value of agricultural exports,
mainly reflecting the spectacular take-off in rice and coffee production and exports. In only a few
years, Vietnam turned from being a net rice importer into the world’s second largest exporter,
after only Thailand.
Efforts to control Vietnam’s import growth have also been fairly successful. In the last 4
years, import levels have remained fairly stable. For the second consecutive year, Vietnam had a
balance-of-payments surplus in 1999. The country's balance-of-payments surplus has been due
not only to robust trade performance but also to official development assistance and remittances
from overseas Vietnamese. The participation of Vietnam into ASEAN, AFTA, ASEM, APEC
and the Vietnam–US Bilateral Trade Agreement were important landmark of the country’s active
integration process into the regional and world economy. The country is currently negotiating its
accession into the World Trade Organisation and expects to become a member by end of 2005.
Figure 1.2.5 – Annual growth rate of exports and imports
100
87.4
80
60
35.8 34.4 33.2
40
23.5
21.6
20
23.7
26.6
28.9
23.3 25.5
20.8
15.7
11.2
8.2
3.8
1.9
0
-20
% Export
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
-40
-13.2
% Import
Source: General Statistical Office of Vietnam
The Vietnam economy as a whole still ranks low in the ladder of international
competitiveness. In 2003, Vietnam was ranked at 60th among 102 countries in terms of growth
competitiveness index; 45th in terms of macroeconomic environment; 61st in terms of public
8
institution index; and 73rd in term of technology index2. Vietnam was ranked at 50/101 in term of
business competitiveness index; 51/101 in term of company operation and strategy ranking;
48/101 in term of quality of national business environment ranking.
1.3. Economic Policies
Vietnam was reunified in 1975. After reunification, an ambitious industrialisation plan
was launched throughout the country, which had many features of a typical centrally planned
economic development model. A capital-intensive industrial base was built up with external
support, mainly from the Soviet Union. Private entrepreneurial activities only happened to a
limited extent, mostly in the tertiary sector. Capital, production inputs and labour allocated to
enterprises were administratively decided. All key prices, including wages and interest rate on
capital were also decided by the government, which meant they were maintained at very low
level or even negative in real terms, having little influence on production decisions. The goals of
enterprises were set in terms of quantitative production targets. SOEs did not have to be
accountable for any inefficiency or unprofitability as long as the quantitative targets had been
achieved. Foreign trade was State monopoly.
This irrational and administratively forced industrialisation policy only caused lower
industrial growth and led to an inefficiently structured economy. By the late 1970s, Viet Nam
was facing a major economic crisis, with acute shortages of food, basic consumer goods, and
inputs to agriculture and industry, and a growing external debt. Economic stagnation led to
pressures for change. At the beginning of 1979, socio-economic targets were revised downwards
and agreement was reached on the need to decentralise some decision-making authority and to
provide improved incentives for increased production.
In January 1981, a contract system was introduced in the agricultural sector 3, and the
government issued a decision providing limited autonomy to SOEs 4. The number of mandatory
targets that enterprises had to meet was reduced, and a 'three-part plan' system, which gave
enterprises rights to operate outside the plan, but only after centrally planned targets had been
met, was introduced.
Other reforms included moves to shift official prices closer to market rates in October
1981, and decentralisation of trade to local enterprises. These reforms were followed by
decisions taken at the Fifth Party Congress in 1982 to reorient previous policies that focused on
2
WEF Report 2003.
Directive No. 100 of the Party Central Committee, 13 January 1981, 'On Piece-work Contracts to Employee
Groups and Individual Employees Working in Agricultural Cooperatives'
4
Decision No. 25-CP (21/1/1981) on 'Several Directions and Measures to Enhance the Rights of Industrial State
Enterprises to take Initiative in Production and Business and in Self-Financing'
3
9
heavy industries and an inward-oriented economy to give greater attention to agriculture, light
manufacturing industries and export-oriented production.
While the partial reforms introduced in the period 1979-1982 had an important impact in
improving production incentives, the reforms did not adequately address key issues of pricing,
financial discipline and reform of the bureaucratic administrative structures. Public sector and
trade deficits increased alarmingly.
Inflation accelerated rapidly and growth began to slow from 1985. Government attempts
to reduce these imbalances through currency, price and wage reforms were poorly coordinated,
and fiscal imbalances and inflation became acute. The instability in 1986 led to social pressures
for reforms to promote macroeconomic stability. The ‘Doi Moi’ process, thus, was initiated,
which gradually gives way to new economic policy thinking and policy-making. Major policies
of the post-1986 period now carry the new ideas of liberalisation, modernisation and integration.
1.3.1. Industrial policy
Vietnam’s economic performance since the start of the Doi Moi process, though
impressive enough for a country coming out of the centrally planning system with acute
economic crisis, has not been uniformly distributed across all sectors of the economy. It was
observed that some industries and activities have made the transition stage much more
successfully than others, while some industries or sectors have become sluggish despite the
various protection measures or incentives by the State. Vietnam’s industrial policy, in general,
need a shake-up in lights of the rapid changes that have been occurring all through this region,
and of the many distortions that needed to be eliminated as Vietnam began to re-orient its
economy towards the international markets.
It is widely commented that even after nearly two decades of reforms, many of the
interventionist policies of the old command system have not yet totally been eradicated in the
country. Vietnam’s industrial policymakers remain stuck to a significant degree in strategies
based on import substitution and continued state dominance of all but the peripheral small firms
and those controlled or managed by foreign investors5. Vietnam’s Socio-Economic Development
Strategy for the period 2001-20106 has set the target for Vietnam to “become an industrialised
and modern country by 2020". Toward such target, some specific measures were spelt out;
amongst which state sector reform and development of import-substituting industries continue to
Perkins, Dwight H., “Industrial and Financial Policy in China and Vietnam: A New Model or a Replay of the East
Asian Experience?”, Chapter 6 - Rethinking the East Asia Miracle, edited by Joseph Stiglitz and Shahid Yusuf,
World Bank 2001.
6
Report presented by the Central CPV Committee (8th Tenure) to the 9th CPV Congress,
http://www.cpv.org.vn/dcsvn, 2001.
5
10
be prominent focuses. The document reads, “The leading role of the State economic sector is to
be enhanced, governing key domains of the economy; State enterprises are to be renewed and
developed, ensuring production and business efficiency”. It also put a clear emphasis on the
“rapid development of industries which can make the best use of [Vietnam’s] competitive
advantages, control the domestic markets and push up exports”, as well as “selective
construction of some heavy-industry manufacturing units”.
A long-time industrial policy objective in Vietnam has been to build up conglomerates of
international competitiveness to be the flag-carriers of the Vietnam’s economy7. In 1994, the
Prime Minister issued Decision 90/TTg and Decision 91/TTg, to group about half of the SOEs
under a number of large-size umbrella companies known as General Corporations (GC).
Decision 90 (issued on March 7, 1994) created 76 GCs, usually called GC90, each with at least 5
voluntary members and minimum legal capital of VND100bn, and Decision 91 called for much
larger corporations with at least 7 SOEs members and a minimum capital of VND1000bn,
resulted in only 17 GCs, which are called GC91. All 17 GC91 and 76 GC90 combined have a
total members of 1,392 SOEs, accounting for 24 of all SOEs in terms of number and 66 and 55
in terms of capital and employees, respectively8.
The government continued to provide import-substitution policy to protect those SOEs,
which are mostly capital-intensive: steel, motorcycle, and industrial equipments. Indirectly,
investment poured into this sector, instead of moving toward developing a stronger private
sector. This was further enhanced by foreign investment, since foreign investors felt assured that
they can enjoy more incentives as long as they just set up joint ventures with SOEs. The most
important incentive, of all, is the perception that SOEs will not be allowed to fail. To ensure this,
SOEs are protected by a variety of methods, including tariffs and non-tariff barriers, which shield
them from import protection. The strong government commitment to the survival of SOEs,
together with the SOEs’ alliances with powerful ministries, forms a potent shield protecting the
SOEs against competitive market forces. Rhetoric about private sector development
notwithstanding, a level playing field for all is yet to be firmly ensured in the Vietnam’s
economy.
However, despite having gone through many rounds of reforms and receiving numerous
incentives from the State, the SOEs in Vietnam remain a pampered and yet less competitive
sector of the economy. It was most recently reported9 that several SOEs in Vietnam do not have
the resources to remain in existence and are overburdened with overdue debts. The total capital
7
See http://www.vnn.vn/chinhtri/doinoi/2004/05/155892/
Kinh te va du bao, March 1999.
9
See http://www.vneconomy.com.vn/vet/?param=print&id=1907
8
11
assigned by the government to SOEs is around VND189000bn (US$12.2bn) but their overdue
debts total more than VND300000bn (US$19.8bn). Although around 1,000 SOEs have been
equitised10, the amount of capital they represent is barely 3 percent of the total capital assigned
by the government to SOEs. Around 84 percent of equitised SOEs have small levels of capital,
while a relatively high 46.6 percent of them still have at least the minimum level of 51 percent
ownership retained by the state. Only 10 percent of shares in equitised enterprises have been sold
to outside investors.
Other focal points of Vietnam’s industrial policy, as mentioned above, are the promotion
of import-substitution industries and heavy industries. Remarkable achievements have been
reported of Vietnam’s successful outward orientation, especially in light manufactured exports
like footwear, travel bags, textile, etc. However, it should also be noted that these same industries
are protected in the domestic market by quite sizeable tariffs. Final footwear product imports
face tariffs of 40-50, while travel bag import duties are 30. These tariffs, together with the very
low import duties on raw material, provide effective protection for domestic market production.
There are, however, unintended effects of such policies on economic efficiency and consumer
welfare, which need to be balanced. High tariffs, import restrictions and non-tariff barriers
against imports are intended to protect domestic producers of similar products. But protection is
also a form of subsidy whose costs are borne by domestic consumers. When protection is given
to industrial goods, for example steel, cement, or plastics, the price is paid by other down-steam
producers, which makes protection self-defeating.
Heavy industries continue to rank high in the industrial policy agenda of Vietnam. A
large share of investment spending has concentrated on those key industries. There are plans for
two oil refineries, two urea plants, a steel industry, millions of tons more capacity of cement
plants, and many more similar investments, all of which are expected to cost many billions of
dollars. In the meantime, not enough attention has been paid to small-scale industries, small and
medium-sized enterprises (SMEs) and household economic units.
Another issue is the over-focus on economic development in urban and industrial area,
which essentially means disadvantageous against rural enterprises, even though they account for
ten to 11 percent of Vietnamese business. A survey, recently conducted by CIEM and the United
Nations Development Programme (UNDP), reported that companies in some parts of the country
must pay electricity bills that are 10-100 per cent higher than those in urban areas. Rural
enterprises also have difficulty buying or hiring state land and cannot endure the complicated
procedure, so many of them are forced to pay premium prices to rent private land. In addition,
10
The Vietnamese special term for “privatisation”, which essentially means ‘partial privatisation’.
12
credit for rural enterprises is dropping and the survey found that half of the 300-surveyed
enterprises must borrow money from unofficial sources that charge higher interest rates. To
secure an official loan, the enterprises most pay one or two per cent to an intermediary, further
complicating the process. Rural enterprises still lack support from national and local authorities
and only a few enterprises are invited to talks, conferences, and training classes on land and
credit management, while most rural businesses are unfamiliar with tax and customs regulations
and urban enterprises are relatively proficient.
1.3.2. Trade policy
The Doi Moi process, with the extensive reform measures it brought along since 1989,
has greatly improved the ways in which domestic and external trading activities are undertaken
in Vietnam. Domestic prices, instead of being subject to administrative decisions and linked with
strict rations, are liberalised and left to market to decide on the basis of supply and demand. The
State only reserves the right to regulate the price and supply of those goods typically viewed as
natural monopoly (such as electricity, air fair, railway fair, and so on) and of some strategic
goods (such as gasoline, steel, cement, and paper). The State monopoly on trade is abolished;
the participation of the private sector in both intra- and inter-provincial trade is allowed. The
number11 of trading entities has increased, helping to avoid price distortions due to the anticompetitive behaviours of State monopolist traders or quantitative restrictions.
Foreign trade was also substantially liberalised. In 1988, a breakthrough has been made
to abolish the government monopoly on trade, the custom tariff was for the first time introduced
and the private sector was officially recognised. Further trade reforms has proceeded by
removing quotas on all except for certain export and import commodities, the coverage and the
rates of export duties were reduced considerably, the foreign exchange system was unified, and
producers were allowed to sell to any licensed foreign trade company.
The reform was rapidly made during the early 1990s. Private firms were allowed to
participate in foreign trade; tariff exemptions were introduced for inputs used in the production
of exports; the non-tariff barriers was reduced. During 1991 – 1997, just before the Asian
financial crises, the average rate of export growth was particularly high at 28. During the late
1990s, progress was made in a number of areas, including reductions in maximum import tariff
rates, the implementation of tariff reductions associated with membership of the ASEAN Free
Trade Area (AFTA).
11
The number of enterprises allowed to engage in foreign trade increased from about 30 in 1989 to over 1200 by the
end of 1994 and 16200 in 2001.
13
The Vietnam’s trade policy can be described as a mixture of import-substitution and
export promotion. Vietnam tends to protect agricultural, some of labour-intensive products such
as textiles, garments, furniture, some technology-intensive products such as automobile.
Maximum tariff levels were imposed on alcohol, petroleum products, automobiles, motorcycles,
cosmetics, glass, and glass products. Low or minimum tariff rates were on raw material inputs,
machinery, and equipment; especially those are presently not manufactured by Vietnam.
Products like sugar, petroleum products, cement and clinker, some common chemicals, chemical
fertilizer, paint, tubes and tires, paper, silk, construction ceramic, construction glass, construction
steel, some types of engines, automobiles, motorcycles, bicycles and parts, and ships and vessels
are still subject to quantitative restrictions on imports. Export promotion measures have been
undertaken such as allowing private rice exports, the auctioning of garment export quotas, the
provision of financial incentives to exporters, the removal of restrictions on foreign invested
enterprises (FIEs) to export, the elimination of many export taxes, etc.
Trade reforms help the private sector to get access to imported inputs and to export
outlets, which, in turn, boosts market participation and increases competition of all natures.
Competition between Vietnam private sector market players and the state sector in exports,
competition between domestic and imported products resulting in better price and wider range of
products for consumers, etc. Liberalised trade, as well as easier domestic and foreign private
entry, also helps increase trade interactions so that resource allocation is made in an efficient
manner. Obviously trade reform not only increases competition, but also raises the returns to
exports, and encourages investors to move into new modern industries that are in line with the
country’s comparative advantage12. The main point is how to maintain the balance, since trade
policy may easily be an instrument of broader industrial development strategies and any
discrimination against imported products or foreign producers can trigger much trouble in
Vietnam’s further integration process. Vietnam is now committed to creating a more open and
competitive economy through implementation of the AFTA agreements and the US-Vietnam
Bilateral Trade Agreement (BTA). The WTO accession process is also becoming a cornerstone
of economic and structural reform. Protection will no longer be easily available for Vietnam
enterprises and their products will have to compete fiercely with more competitive imported
products. Competitiveness becomes a must for thriving.
12
Ngo Trinh Ha, Catching-up Industrial Development of East Asian Economies and its Application to Vietnam,
Doctoral Course, Graduate School of Asia-Pacific Studies Waseda University, 2004
14
1.3.3. Investment policy
During 1990-2003, the gross domestic saving as a percentage of GDP was always less
than the gross domestic formation (See Figure 1.3.1). The gap between the gross domestic saving
and the gross domestic formation should be financed by the inflows of foreign direct investment.
In this period, as a share of total investment, state investment was equal to 56.2, of which,
investment from the state budget accounted for 23.4, investment from the state credit, including
ODA 15.3, and from SOEs’ equity 17.5; investment from the private sector was equal to 21.2
and that from FDI was equal to 22.6. Thus, one of the important points in the investment policy
in Vietnam is how to attract more foreign direct investment. By the end of 2003, the total number
of newly FDI projects reached to 5,441 with the registered value of US$45776.8mn (See Figure
1.3.2 for the distribution by sector).
Figure 1.3.1 – The gap between the gross domestic saving and the gross domestic formation
40.0
35.1
33.2
35.0
30.0
24.3
25.0
27.1
25.5
28.3
28.1
17.6 16.8
15.1
15.0
18.2
17.1
17.2
10.1
10.9
9.7
2.9
5.0
8.9
8.4
7.5
5.0
28.2
13.8
12.6
10.0
31.2
29.6 28.8
28.7
27.6 27.1
24.6
21.5
20.1
20.0
29.0
8.2
7.6
3.9
6.9
3.1
4.5
2.5
2.4
0.0
1990
1991
1992
1993
1994
1995
Gross domestic saving
1996
1997
1998
1999
2000
2001
Gross domestic capital formation
2002
2003
Gap
Source: ADB
Figure 1.3.2 – The distribution of FDI by sector in the period 1998-2003
Number of FDI projects by sector
22%
67%
11%
Registered FDI value by sector
35%
Services
Agriculture
Industry
59%
6%
15
Services
Agriculture
Industry
Figure 1.3.3 - The trends of FDI inflows
10000
8979
9000
8000
6848
7000
6000
5000
4894.2
4138
3746
4000
3000
2027
2000
735
1000 321.8525.2
0
1568
1275
2018
2592
16211899.6
03
20
02
20
01
20
00
20
99
19
Total registered capital (Mill.USD)
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
19
89
19
88
19
Number of projects
2589
Of which: Legal capital (Mill.USD)
Source: General Statistical Office of Vietnam
Until now, the government has taken a lot of efforts to improve the investment
environment in Vietnam. However, the investment policy in Vietnam has clearly exposed the
discrimination between the domestic and foreign investors. One first and foremost evidence is
the dual existence of the law on foreign direct investment, the law on domestic investment
promotion. Furthermore, the dual price system and the discrimination in land-use rights and
taxation and in the access to credit are also clear examples that indicate the unequal treatment
between foreign and domestic investors. Even amongst domestic investors, there remain
discriminatory treatments between investors from the private sector and the state sector.
Investors in both state and private sectors are entitled to enjoy the preferential treatment specified
in the Law on Domestic Investment Promotion. However, in practice a large share of capital
investment under the preferential treatment has been given to SOEs. According to the data
collected by the Ministry of Planning and Investment (MPI) from reports by various provinces
across the country, the unfair implementation of the Law on Domestic Investment Promotion in
Vietnam can be summarised in Table 1.3.1.
Table 1.3.1 – The capital investment under the preferential treatment
Realised capital investment with preferential treatment
Total number
Share
(Billion VND)
Jobs created
Total number Share
In the whole country
42,001
100
331,354
100
In the SOE sector
25,757
61.3
96,365
29.1
In the private sector
16,244
38.7
234,989
70.9
Source: MPI
16
The dual pricing system was also regarded as discriminatory between foreigners and
Vietnamese. Vietnam is gradually eliminating this dual pricing system in areas such as tourism,
air, rail transportation, seaport charges, charges for TV advertising and utilities such as telephone
charges, electricity and water. Decision 114/2001/QD-TTg (31 July 2001) phased out the dual
pricing policy (See Table 1.3.2).
Table 1.3.2 – Removal of the dual pricing system
(Difference between the Vietnamese and Foreigner)
1998 1999 2000 2001 2002
Clean Water
117
0
0
0
0
Telephone Installation
6
0
0
0
0
Electricity (110 Kw)
31
31
19
19
6
Airfare (HN-HCMC)
90
90
58
50
50
Advertising on TV (VTV)
100
100
100
100
100
Source: Japan External Trade Organisation (JETRO)
2003
0
0
6
0
33
2004
0
0
6
0
0
Vietnam has committed to the elimination of investment licensing for most sectors and is
shifting towards an investment registration regime. In this direction, the Government Decree
27/2003/ND-CP dated 19 March 2003 was issued amending the foreign investment regulations
prescribed by the Government Decree 24/2000/ND-CP dated 31 July 2000. The conditions for
investment registration are specified in Article 105 of Decree 24 (Amended). Despite many
reforms have been made to improve the investment environment, there are still some significant
restrictions, such as business sector restriction, ceiling restriction, and management restriction.
Presently, both domestic and foreign investors are awaiting a Common Investment Law, the draft
of which was prepared in April 2004. To support the Common Investment Law, a Unified
Enterprise Law13 will also be drafted at the same time.
1.3.4. Privatisation policy
In Vietnam, SOEs still represent a substantial part of the economy in some aspects. SOEs
are at an advantage as compared to private enterprises in terms of access to credit, land use
rights, trade protection, etc. Despite these advantages, since the end-1997 their performance has
deteriorated: inventories have built up due to the plunge in domestic as well as in foreign
demand; their contributions to the State budget have decreased; default bank loans have risen to
an alarmingly high level. In 2000, only 76 of all SOEs in Vietnam managed to make some profits
13
The Enterprise Law 13/1999/QH10 dated June 13, 1999 can be regarded as a turning point in developing the
private sector in Vietnam. This law simplifies and reduces the cost related to the registration procedures. It helps to
improve considerably the investment environment in Vietnam. During 2000-2003, about 75,000 enterprises were
established, while in the period 1991-1999 there were only 45,000 enterprises. The total registered capital was about
US$10bn, much higher than FDI and 4 times higher than the investment of enterprises during the previous period.
17
(see Figure 1.3.4); while out of 17 conglomerates - GC 91, 12 made losses or broke even; the
remaining five profit-making conglomerates were those that either exploit natural resources or
enjoy a varying degree of monopoly over price setting (except the Rubber and Shipping
conglomerates)14. The data from the Cement General Corporation, for instance, shows that the
efficiency in this Corporation is decreasing rapidly. For example, as shown in Column (6) the
ratio of profit over turnover decreased from 15.1% in 1995 to 3.3% in 2004.
Table 1.3.3 – Some indicators of the Cement General Corporation
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Output
Turnover
(Tons)
(1)
(Bill.
VND)
(2)
5,189,028
5,737,215
6,012,470
5,729,313
5,851,157
7,427,592
7,959,028
9,860,000
11,500,000
12,400,000
5,981
6,341
6,499
6,576
5,845
7,076
7,673
9,577
10,500
12,700
Contribution
to Budget
Profit
(3)/(2)
(4)/(2)
(Bill. VND)
(3)
(Bill.
VND)
(4)
(%)
(5)
(%)
(6)
1,077
939
905
821
633
675
908
892
869
867
901
640
495
588
503
614
605
577
582
423
18.0%
14.8%
13.9%
12.5%
10.8%
9.5%
11.8%
9.3%
8.3%
6.8%
15.1%
10.1%
7.6%
8.9%
8.6%
8.7%
7.9%
6.0%
5.5%
3.3%
Source: Report presented in the Simenar "Business Group - Practical Issues
and Policy Recommendation, Hanoi 30/05-01/06/2005, CIEM
Their failures were attributed to such factors as the lack of management autonomy and
entrepreneurship (director or managers of SOEs typically behave as bureaucrats rather than
entrepreneurs), soft budget constraints, self-sufficiency and also in many cases, the lack of
competition15. Reform of SOEs became essential.
Figure 1.3.4 - Financial Performance of SOEs in 2000
14
Tran Binh Nam, State Owned Enterprises Reform and Doi Moi Mark II?, Asian Analysis Newsletter Nov 2002,
ASEAN Focus Group, Australian National University.
15
Tran Van Tho, Vietnamese Gradualism in Reforms of the State-Owned Enterprises, Waseda University, Tokyo,
2002
18
6%
18%
Break-even
Loss-making
Profit-making
76%
Source: GSO (2002)- The results of the enterprise census at 1st April 2001, Statistical Publishing
House, Hanoi.
Until recently, the reforms of SOEs in Vietnam has concentrated on management systems
and restructuring. The reforms on the management system have been aimed at making SOEs
more efficient, by hardening their budget constraints on one hand, and giving autonomy to them
on the other. The restructuring policy for SOEs has been designed to strengthen SOEs by
increasing their scale through merging with small SOEs or the liquidation of ill-managed and
financially weak SOEs. These programmes, however, revealed many drawbacks and did not help
to improve SOEs’ performance. On 10th May 1990, the President of the Council of Ministers
(now, the Prime Minister) issued Decision No 143-HDBT which gave permission to transform
some SOEs in to joint stock companies.
In the early 1990s, the number of SOEs was reduced from more than 12,000 to 6,000.
However, the pace of equitisation was very slow. As shown in Paul Cook and Yuichiro Uchida
(2002)16, in terms of Cumulative Proceeds from Privatisation in the period 1988-1997, Vietnam
was ranked at 63 out of 64 countries. Since 1998, a series of reforms, including small SOE
privatisation, liquidation of insolvent companies and equitisation, has reduced the number of
SOEs to 5531. Of which, 1877 SOEs are centrally managed and 3654 SOEs are provincially
managed.
Table 1.3.4 - Some main indicators of enterprises in 2002 (In percentage)
TOTAL
By ownership
1. Sector of State enterprises
+ Central
+ Local
16
Capital
resource
at 31-12
(Billion
VND)
Number of
enterprises
at 31-12
Number of
employees
at 31-12
(Persons)
Net
turnover
(Billion
VND)
100
100
100
100
100
100
8.5
3.3
5.3
48.5
31.0
17.5
62.1
52.6
9.5
51.2
39.1
12.1
41.7
33.6
8.1
52.5
41.1
11.5
Profit
(Billion
VND)
Paul Cook and Yuichiro Uchida, Privatisation and Economic Growth in Developing Countries, 2002
19
Tax and
fees paid
(Billion
VND)
2. Sector of non-state
enterprises
+ Collective
+ Private
+ Private Limited Co.
+ Joint stock Co. having
capital of state
+ Joint stock Co. without
capital of state
3. Sector of Foreign investment
+ 100 foreign capital
+ Joint venture
By kind of economic activity
Agriculture, Hunting And
Forestry
Fishing
Mining And Quarrying
Manufacturing
Electricity, Gas And Water
Supply
Construction
Wholesale And Retail Trade;
Repair Of Motor Vehicles ...
Hotels And Restaurants
Transport, Storage And
Communications
Financial Intermediation
Science And Technology
Activities
Real Estate, Renting And
Business Activities
Education
Health And Social Work
Cultural And Sport Activities
Other Community, Social And
Personal Service Activities
87.8
6.5
39.4
37.3
36.6
3.4
7.3
19.8
16.5
0.7
2.2
8.3
30.1
0.9
7.6
16.9
8.8
0.6
1.7
2.4
10.8
0.3
1.6
6.8
0.9
3.1
3.0
2.5
3.2
1.2
3.6
3.7
2.5
1.2
0.0
3.0
14.8
11.5
3.3
0.0
2.3
21.4
10.1
11.3
0.0
2.0
18.7
8.1
10.5
0.0
1.0
49.5
4.3
45.2
0.0
1.0
36.6
4.1
32.5
0.0
1.5
3.8
1.4
23.5
4.8
0.9
3.3
47.3
2.2
0.2
3.9
24.4
0.8
0.2
4.7
30.9
1.3
0.3
39.9
22.8
0.6
0.1
26.3
25.2
0.3
12.5
1.8
17.2
6.0
7.9
2.1
7.1
4.2
3.0
2.4
2.8
39.4
4.5
9.9
1.7
17.5
1.9
42.5
0.8
1.6
0.2
25.9
0.7
5.2
1.7
8.2
1.7
6.0
25.0
5.5
3.5
17.9
6.4
5.9
4.0
0.0
0.0
0.0
0.0
0.0
0.0
5.1
0.2
0.1
0.3
2.2
0.0
0.1
0.3
4.5
0.0
0.1
0.2
1.4
0.0
0.0
0.3
2.3
0.0
0.0
0.0
5.9
0.0
0.0
0.1
0.4
0.6
0.2
0.1
0.2
0.1
Source: GSO (http://www.gso.gov.vn)
Aiming to tackle the poor financial conditions and the inefficiency of SOEs, the GOV
took on a five-year SOE reform plan in March 2001. By the end of December 2002, the number
of SOEs in the whole country was 5,175, decreasing by 480 enterprises from May 2001 (after a
duration of 18 months), thanks to the divestiture, merger, dissolution, bankruptcy. 3,979 out of
the mentioned 5,175 SOEs made profit (76.9%), 380 were break even (7.3%), and the remaining
816 suffered losses (15.8%). The respective ratios for SOEs under Ministerial management were
87%, 2.7% and 10.3%; provincial management were 72%, 10% and 18%; and GCs 91
management were 79.22%, 2.8% and 17.98%.
The specific results achieved in the recent SOE reform process can be summarised as
follow:
(1)
Amendment of and supplementation to the policies and legislation framework
for SOE rearrangement, reform, development and efficient improvement;
20
(2)
Setting up of the master plans on rearrangement of SOEs and State general
corporations;
(3)
Renewal of the management structure of State general corporations;
The Prime Minister has so far permitted 33 enterprises to make their plans on pilot
conversion under holding company model. By the middle of this May 2003, the Prime Minister’s
approvals have been made to plans of 11 enterprises, including: VIETNAM AIRLINES,
VINALINES, CONSTREXIM, IMI, SOWATCO, Ben Thanh Corporation, Khanh Viet
Corporation, Power Construction Company No. 3, Construction Investment and Development
Company, Saigon Gemstone and Gold Company, and Ha Tinh Trading and Mining Corporation.
The other enterprises are on the way of either finalizing their plans or just having submitted their
plans to the Prime Minister for approval.
Pilot plans on establishing Economic Groups in such sectors as post and
telecommunications, oil & gas, power, and construction are still under preparation. The pilot
signature of the contract with the General Directors by the Boards of Management has just been
approved by the Prime Minister, in favour of VINASHIN and Transport Engineering
Corporation.
(4)
SOE divestiture; and
(5)
Pilot conversion of some SOEs into one State owner limited liability
companies.
The working group for implementation of Decree No. 63/2002/ND-CP already worked
with selected 14 SOEs for the pilot conversion into one State owner limited liability companies.
Up to now, decisions have been made on 2 of the said 14 enterprises including Ninh Binh
Electricity (EVN) and Mining Chemical Company (VinaCoal). The other 3 enterprises including
Vietnam Air Petrol Company (Vietnam Airlines), Vietnam Ocean Shipping Company
(Vinalines) and Thu Duc Electronics Company (Vietnam Electronics-Informatics Corporation)
submitted the conversion plans and company charters to their GCs for approvals.
The Garment Company No.10 (Vinatex), Site Survey and Construction Company
(Ministry of Construction), Hanoi Mechanical Company (Vietnam Industrial Machinery and
Equipment Corporation), Southern Basic Chemical Company (Vinachem), and Tan Mai Paper
Company (Vinapimex) have basically completed their preparatory work. The remaining SOEs
are under the preparatory stage.”
The determination to speed up equitisation is clearly evident, but questions remain about
actual implementation. There is much work to be done: the Ministry of Planning and Investment
(MPI) is drafting a list of investment sectors in which restrictions on the non-state sector in
certain fields are clearly identified; and the Ministry of Finance (MoF) is drafting a regulation
21
regarding the mechanism for capital contributions by foreign investors. These two key policies
are expected to be released in the second quarter of this year.
The goings-on, though, are not limited to these two activities. The GOV is keen for the
National Assembly to ratify two key laws: the Unified Enterprise Law (UEL), which will govern
all kinds of businesses, and the Unified Investment Law (UIL), managing all types of
investment. The two laws are expected to be approved in time for Vietnam to achieve its goal of
joining the WTO by end 2005; and all of these efforts are being closely watched not only by
local investors but also foreign strategic investors, who hope to become involved in blue-chip
local giants through this equitisation process at a higher ratio than the current 30 percent,
provided by the Law on Foreign Direct Investment.
Currently, SOEs are still shielded under the umbrella of the revised Law on State
Enterprises, which was promulgated in November 2003 and came into effect in July 2004. Other
important legal documents regarding SOE reform includes: (a) Decree 28/CP on implementing
the transformation of SOEs into joint-stock companies; (b) Decree 44/1998/ND-CP and Decree
64/2002/ND-CP on speeding up the equitisation process of SOEs17; (c) Decree 103/1999/ND-CP
on the transfer, sale, contracting and lease of SOEs; (d) Decree 63/2001/ND-CP outlining the
procedures for corporatisation of SOEs was also issued; (e) Decision 58/2002/QD-TTg on
rearranging and developing business and public-utility State enterprises. The sad new is that the
scope of application of the latest draft UEL does not include all SOEs, only those that convert
into limited liability companies or shareholding companies. Although the GOV has been
pursuing a program of SOE reform and equitisation, to date, it is mainly small or loss-making
SOEs (including small subsidiaries of major SOE groups or General Corporations-GCs) that
have been converted into joint stock companies, while the GCs themselves, (such as those in the
oil and gas industry, cement, steel, and textiles), remain wholly state-owned. Any attempt to
introduce a level playing field will not really be of significance while SOEs are subject to a
separate legal regime and retained under the current system of state management.
1.4. Importance of competition in the overall economic policy regime
Vietnam does not have an integrated competition policy to oversee competition-related
issues in all industries, sectors, and segments of the economy. Besides, it was only until the end
17
The key improvements in equitisation process are:
For all SOEs:
Line ministries, people's committees, and general corporations have been given authority to select and implement
equitisation;
The valuation process though centralised, now requires fewer steps;
Proceeds from sale of provincially-owned SOEs can be retained by local authorities' budgets; and
Foreign entities are permitted to buy limited shares in equitised SOEs.
For Small SOEs (assets < VND1bn), more options are now permitted:
Sale without conversion to joint-stock company possible;
Outright sale, divestiture, or dissolution of the entire SOE;
Use of competitive tendering to sell an SOE or shares of SOE; and
Line ministries and local authorities will have the authority to decide on which options to use to sell.
22
of 2004 did Vietnam manage to promulgate a competition law in order to control anticompetitive practices in the market, after a long and debatable drafting process. However,
competition has been increasingly embodied in various policies, laws and regulations related to
the socio-economic development strategies of Vietnam since the Doi Moi process was started.
The right of all players in the economy to compete equally and fairly under the law is
clearly recognised by many important State documents, and so is the role of market forces and
competition though the ‘socialist orientation’ is still emphasized as the leading principle. Article
16 of the 1992 Constitution (Amended, 2001) of Vietnam read, “the State’s economic policies
(…) bringing into full play all production capacity, all potentials of various economic sectors,
(…), in various forms, boosting the construction of material and technical foundations,
expanding economic, scientific and technical cooperation and exchanges with the world market.
All economic sectors are important components of the socialist-oriented market economy.
Organizations and individuals of all economic sectors may conduct production and business
activities not prohibited by law, striving for long-term development, cooperation, equality and
competition under law. The State promotes the formation, development and gradual perfection
of assorted markets along the socialist orientation.” The Ten-year Socio-economic Development
Strategy for 2001-2010 (SEDS) endorsed by the 9th CPV Congress and by the Vietnam National
Assembly includes a commitment to creating a level playing field for all enterprises regardless of
ownership, and to completely opening the economy to global competition over the coming
decade. According to this document, of paramount importance are the tasks:


"To renew and complete the legal framework work, dismantle all obstacles in terms of
mechanism, policy and administrative procedure with a view to maximizing all resources,
generating a new impetus for the development of production and business by all economic sectors
with different forms of ownership. All enterprises and citizens are entitled to invest in businesses
in the forms stipulated by laws and to be protected by the law. All business organisations in
different or mixed forms of ownership are encouraged to develop on a long-term basis,
cooperate and compete equally, and constitute an important integral part of the socialistoriented market economy. To develop vigorously small and medium enterprises; step-by-step set
up a number of powerful economic groups".
"To establish in a synchronised manner and continue developing and completing different kinds
of market in parallel with the formation of a legal and institutional framework, for the market
to operate dynamically, efficiently and orderly in a healthy, open and transparent environment
restrictive to and controlling over business monopoly. To adopt effective measures to fight
smuggling and trade fraud".
With such recognition, competition is more and more considered as an integral element in
many laws and regulations. Of such laws and regulations, many can be quoted as specifically
mentioning ‘competition’ and regulating competition-related issues. For example, Article 8 of
the Commercial Law of Vietnam states that: “(i) Traders are allowed to legally compete in
commercial activities; (ii) Competitive activities that harm the national interests and the
23
following activities are prohibited: (a) speculating to control markets; (b) setting predatory
prices; (c) backbiting other traders; (d) illegally preventing, attracting, bribing, threatening staff
or customers of other traders; (e) infringing upon trademark rights and other rights related to
intellectual industrial property; (f) other illegal competition practices”. The Criminal Code
15/1999/QH10 defines some criminal conducts related to producing and trading counterfeit
products (Article 156), undertaking illegal business transactions (Article 159), or speculation
(Article 160), deceiving consumers (Article 162), distorting information in economic
management (Article 167), and misleading advertisement (Article 168). A lot more examples can
be quoted, including sectoral regulatory policies, which are issued and enforced by line
ministries and local governments, limiting access to many sectors for private providers.
However, notwithstanding policy guidance, laws or regulations, far more needs to be
done before competition really become the underlying principle of all economic policies.
Inconsistency and overlapping is just one side of the problem, the side of policymaking. More
worrying is the real practice. The GOV obviously sees the importance of market competition and
has repeatedly acknowledged that it makes Vietnamese firms more efficient. However, they are
at the same time still preoccupied with the potential job losses and corporate insolvencies that
might follow from liberalising market forces. Besides, the remnants of a centrally planning,
bureaucratic mindset and remaining misconceptions and scepticisms are yet to be totally
eradicated, resulting in several distortions in policy implementation. The Vietnam markets are
still far from being competitive and more need to be done before the benefits of competition can
be fully comprehended and realised towards better economic efficiency and consumer welfare in
the long run.
24
Chapter 2
Market structure and competition
2.1. The overall picture
The Vietnamese economy is characterised by a large number of small and medium sized
enterprises (SMEs) with little capital. However, while around 90 percent of all enterprises in
Vietnam can be categorised as SMEs18, total SME capital accounts for just 20 percent of the total
business capital value of all enterprises. A small number of SOEs holds most of the capital of the
whole country (See Table 2.1.1). More importantly, the SOEs are dominant players in most of
the important sectors. - those that the GOV has deemed "strategic" - such as cement, petroleum
products, steel, sugar, fertilizer, rice, telecommunications, aviation, financial services, importing,
distribution, and others.
Table 2.1.1 - Vietnam enterprises at a glance
Total number of enterprises in the whole economy
1. Number of enterprise by type of ownership
- SOEs
- Private sector enterprises
+ Cooperatives
+ Single-owner enterprises
+ Limited liability companies
+ Share-holding companies
+ Foreign invested enterprises (FIEs)
2. Number of enterprises sector-wide
- Agriculture, forestry and fishery
- Manufacturing
- Construction
- Trading, hotel and restaurant services
- Transportation and telecommunication
- Other sectors
3. Enterprise composition categorised by size
- By size of workforce
+ Enterprises with < 10 employees
+ Enterprises with 10- < 50 employees
+ Enterprises with 50- < 200 employees
+ Enterprises with 200- <500 employees
+ Enterprises with > 500 employees
- By size of capital
+ Enterprises capitalised at < VND1bn
1/1/2001
1/1/2002
1/1/2003
39,762
51,057
62,892
5,531
32,702
3,187
18,226
10,489
800
1,529
5,067
43,933
3,614
22,554
16,189
1,636
1,997
5,033
55,555
4,112
24,818
23,578
3,038
2,304
891
10,946
3,984
19,289
1,789
2,871
3,424
12,951
5,588
22,849
2,535
3,710
3,376
15,818
7,814
27,633
3,251
5,000
50
27
14
5.4
3.6
52
As per the definition by the Ministry of Planning and Investment of Vietnam “SME is organisation with legal
capital is not over US$700,000 or number of employees is not over 300".
18
25
+ Enterprises capitalised at VND1bn to < VND5bn
+ Enterprises capitalised at VND5bn to < VND10bn
+ Enterprises capitalised at > VND10bn
26
7
15
Source: General Statistical Office, 2004
Most markets can be said to be rather concentrated, or dominated by giant State players,
which are often vertically integrated groups controlling all from material imports, manufacture,
to marketing and distribution channels. Indeed, in 2003, the State corporations19 produced and
supplied 100 of petroleum output, 50 of petroleum sale, 98 of electricity output, 97 of coal
output, 90 of chemical fertilisers, 99 of basic chemicals, 70 of paper, 69 of rubber, 55 of cement,
52 of steel, for the whole economy; and transport 100 of cargo and passengers by railway, 90 of
cargo and passengers by air in Vietnam. As shown in Table 2.1.2, the State sector has taken
dominant position in production of the following products: coal (95.7% - 99.6%), beer (62.368.5%), cigarettes (98.2-99.4%), knitting wool (75-100%), woollen carpets (42.1-78.2%),
hosiery (45.1-97.8%), fabric shoes (52.1-92%), printed pages (97.1-99.3%), insecticides (68.2100%), chemical fertilizers (98.1-100%), medical ampoules (84.4-99.8%), medical tablets (8397.8%), liquid medicine (83.7-98.3%), bicycle tyres (61.4-85.3%), bicycle tubes (78.2-99.7%),
cement (68.1-99.8%), insecticide pumps (88.5-99.4%), tractors and lorries (96.3-100%),
electricity rotating engines (95.9-99.6%), transformers (55.9-85.7%), electric fan (71.1-99.3%),
assembly radio-cassette (39-100%), electricity (93.1-100%), and running water (92.7-100%). In
some other sectors, however, non-State players has grown rather strong, such as: milled rice,
maize (93.5-98.4%), tea (39.8-63.4%), liquor (50.7-95.6%), saw wood (61.5-97.2%), personal
porcelain (84.2-92.7%), industrial porcelain (61.4-98%), bricks (73.8-83.7%), tiles (84.4-92.1%),
threshing machines (82.7-100%), and threshing machines without motor (86.1-97%). In
particular, FIEs’ are dominant vis-à-vis such sectors as: glass products (44.7-72.3%), assembly
automobiles (93.1-100%), assembly motorbike (43.7-100%), and assembly television set20 (66.390.7%).
There are, however, some perceptible changes in several sectors towards gradually
reducing the domination of State players. The production of sugar and sugar syrups in the nonState sector, for instance, is decreasing steadily from 77% in 1995 to 30% in 2003; meanwhile
the production by FIEs is increasing from 5% in 1997 to 30% in 2003. The production of textile
fibres in the State sector increased from 86.4% in 1995 to 93.2% in 1998 and then decreased
steadily to 36.8% in 2003. The reverse trend was observed in the foreign invested sector: its
share decreased from 13.4% in 1995 to 6.2% in 1998, but then increased steadily to 61.7% in
19
Report on the three-year implementation of the 3rd Central Party Committee presented at the National Meeting for
SOE Reform 3/2004.
20
During 1997-2003
26
2003. The production of towels and handkerchiefs in the State sector decreased from 67.8% in
1995 to 30.6% in 2003, changing the role to non-State sector. A more competitive structure
exists in the market for ready-made clothes. The production of soft leather in the State sector
deceased from 70.9% in 1995 to 38.3% in 2003, giving more market share to the non-State
sector, from 0% in 1995 to 55.4% in 2003. The production of footwear in the State sector
decreased from 61.3% in 1995 to 22.6% in 2003, giving up more share to the non-State and
foreign invested sectors. (See Table 2.1.2 for a more detailed view over other sectors)
Table 2.1.2 - Main industrial products by ownership (In Percentage)
1995
1996
1997
1998
1999
2000
2001
2002
Prel.
2003
100
100
100
100
100
100
100
100
100
- State
99.0
99.5
99.6
99.1
98.3
96.1
97.0
95.7
95.7
- Non-State
- Foreign
invested sector
1.0
0.5
0.4
0.5
0.8
1.6
1.6
1.8
1.2
0.0
0.0
0.0
0.4
0.9
2.3
1.5
2.5
3.1
Milled rice, maize
100
100
100
100
100
100
100
100
100
- State
3.7
4.3
2.8
6.3
5.3
1.6
3.4
2.8
2.6
- Non-State
- Foreign
invested sector
94.4
95.0
97.0
93.5
94.7
98.4
96.6
97.2
97.4
1.8
0.6
0.2
0.2
0.0
0.0
0.0
0.0
0.0
Sugar, sugar syrups
100
100
100
100
100
100
100
100
100
- State
22.6
28.0
34.0
34.9
43.5
40.9
36.4
36.9
40.5
- Non-State
- Foreign
invested sector
77.4
72.0
61.0
53.8
40.2
37.9
39.3
35.8
29.7
0.0
0.0
5.1
11.3
16.3
21.2
24.4
27.3
29.8
Tea
100
100
100
100
100
100
100
100
100
- State
54.9
55.4
53.6
49.2
50.6
36.7
32.7
25.7
24.7
- Non-State
- Foreign
invested sector
45.1
41.9
42.0
39.8
40.6
50.2
55.0
62.8
63.4
0.0
2.7
4.4
11.0
8.7
13.1
12.3
11.4
11.9
Liquor
100
100
100
100
100
100
100
100
100
- State
49.0
55.0
5.8
5.5
10.1
7.4
4.8
4.3
4.0
- Non-State
- Foreign
invested sector
50.7
44.7
94.0
93.3
88.8
91.3
95.0
95.3
95.6
0.3
0.3
0.1
1.2
1.2
1.3
0.1
0.4
0.4
Beer
100
100
100
100
100
100
100
100
100
- State
67.5
68.5
67.5
66.9
67.4
66.7
66.2
65.0
62.3
- Non-State
- Foreign
invested sector
3.2
5.3
5.9
5.5
5.9
5.4
5.9
8.6
11.6
29.2
26.3
26.7
27.6
26.8
28.0
28.0
26.3
26.1
Cigarettes
100
100
100
100
100
100
100
100
100
98.6
99.4
99.0
99.2
99.1
98.8
98.2
98.9
99.1
Coal
- State
27
- Non-State
- Foreign
invested sector
1.4
0.1
0.1
0.6
0.4
0.6
0.2
0.0
0.1
0.0
0.5
0.8
0.1
0.6
0.6
1.6
1.1
0.8
Textile fibres
100
100
100
100
100
100
100
100
100
- State
86.4
87.0
91.6
93.2
91.8
60.4
53.8
39.7
36.8
- Non-State
- Foreign
invested sector
0.2
0.6
0.7
0.6
0.6
1.3
1.6
1.5
1.5
13.4
12.4
7.7
6.2
7.6
38.4
44.5
58.8
61.7
Knitting wool
100
100
100
100
100
100
100
100
100
- State
85.8
100
90.4
75.0
78.3
75.9
89.9
91.3
90.9
- Non-State
- Foreign
invested sector
0.0
0.0
9.6
18.5
17.0
22.4
10.1
8.7
9.1
0.0
0.0
0.0
6.4
4.7
1.7
0.0
0.0
0.0
Fabrics of all kinds
100
100
100
100
100
100
100
100
100
- State
57.0
53.3
51.2
47.0
45.7
46.4
40.6
40.9
35.5
- Non-State
- Foreign
invested sector
Towels,
handkerchiefs
27.4
22.1
26.9
25.4
22.9
23.0
25.1
25.6
28.7
15.6
24.6
21.9
27.6
31.3
30.7
34.3
33.5
35.7
100
100
100
100
100
100
100
100
100
- State
67.8
58.6
54.5
47.5
55.4
48.1
38.8
35.3
30.6
- Non-State
- Foreign
invested sector
28.6
36.0
37.2
42.4
40.9
41.2
51.6
56.6
62.1
3.6
5.4
8.3
10.1
3.7
10.6
9.6
8.1
7.3
Woollen carpets
100
100
100
100
100
100
100
100
100
- State
21.8
54.3
44.8
48.4
38.0
33.2
23.5
38.4
38.5
- Non-State
- Foreign
invested sector
78.2
45.7
49.0
42.1
49.1
54.3
76.5
61.6
61.5
0.0
0.0
6.3
9.5
13.0
12.4
0.0
0.0
0.0
Hosiery
100
100
100
100
100
100
100
100
100
- State
97.8
96.1
93.4
92.7
82.9
54.5
45.1
56.1
65.8
- Non-State
- Foreign
invested sector
1.2
1.9
1.9
2.6
12.9
9.1
9.4
9.9
6.1
1.0
2.0
4.7
4.6
4.2
36.3
45.4
34.0
28.1
Ready made clothes
100
100
100
100
100
100
100
100
100
- State
42.1
34.2
27.5
32.8
36.1
36.6
37.1
37.4
26.9
- Non-State
- Foreign
invested sector
42.3
55.3
36.4
46.0
44.6
44.2
42.7
37.6
36.5
15.6
10.5
36.1
21.2
19.3
19.2
20.2
25.0
36.6
Soft leather
100
100
100
100
100
100
100
100
100
- State
70.9
52.1
77.3
89.0
56.8
59.5
46.7
39.9
38.3
- Non-State
- Foreign
invested sector
0.0
7.1
0.4
3.5
35.2
29.0
48.3
54.1
55.4
29.1
40.8
22.3
7.5
8.0
11.4
5.0
6.0
6.2
Footwear
100
100
100
100
100
100
100
100
100
61.3
54.8
60.7
39.9
37.1
29.1
20.8
22.8
22.6
- State
28
- Non-State
- Foreign
invested sector
15.4
25.8
25.6
36.2
38.2
42.3
44.0
37.0
34.0
23.2
19.4
13.7
23.9
24.7
28.6
35.2
40.2
43.4
Fabric shoes
100
100
100
100
100
100
100
100
100
- State
85.3
86.4
72.4
91.8
86.8
87.6
92.0
56.4
52.1
- Non-State
- Foreign
invested sector
2.9
4.2
11.7
4.6
5.1
4.1
1.9
39.8
43.7
11.8
9.4
15.9
3.6
8.1
8.3
6.1
3.8
4.1
Saw wood
100
100
100
100
100
100
100
100
100
- State
31.1
24.4
20.4
37.4
6.2
12.8
9.1
3.2
2.7
- Non-State
- Foreign
invested sector
68.0
72.5
78.0
61.5
93.8
87.1
90.8
96.7
97.2
0.9
3.1
1.5
1.1
0.1
0.1
0.0
0.0
0.1
Paper covers
100
100
100
100
100
100
100
100
100
- State
82.4
80.0
73.4
71.4
68.1
61.1
58.0
54.4
47.0
- Non-State
- Foreign
invested sector
16.2
18.2
24.3
23.5
29.4
36.5
39.1
42.5
50.2
1.4
1.8
2.3
5.1
2.5
2.4
3.0
3.1
2.7
Printed pages
100
100
100
100
100
100
100
100
100
- State
99.3
98.5
97.1
98.0
99.0
98.2
97.3
98.1
98.1
- Non-State
- Foreign
invested sector
0.7
1.5
2.9
2.0
1.0
1.8
2.7
1.9
1.9
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Insecticides
100
100
100
100
100
100
100
100
100
- State
100
98.6
94.6
92.3
92.6
91.3
92.1
72.5
68.2
- Non-State
- Foreign
invested sector
0.0
0.0
0.0
0.0
0.0
0.0
0.0
8.3
18.2
0.0
1.4
5.4
7.6
7.4
8.7
7.9
19.2
13.6
Chemical fertilisers
100
100
100
100
100
100
100
100
100
- State
100
99.7
99.9
99.7
98.1
99.6
99.3
99.5
99.6
- Non-State
0.0
0.3
0.1
0.3
1.9
0.4
0.7
0.5
0.4
100
100
100
100
100
100
100
100
100
- State
49.0
52.7
68.4
49.3
53.1
27.8
21.0
17.1
15.2
- Non-State
- Foreign
invested sector
1.1
2.3
0.1
2.5
11.6
9.3
18.1
18.4
18.3
50.0
44.9
31.5
48.1
35.4
62.8
60.9
64.5
66.5
Medical ampoules
100
100
100
100
100
100
100
100
100
- State
99.8
99.6
97.4
97.1
95.3
92.0
91.6
90.8
84.6
- Non-State
- Foreign
invested sector
0.0
0.0
1.9
2.0
2.8
6.8
8.1
9.1
15.3
0.2
0.4
0.7
0.9
1.9
1.2
0.2
0.1
0.2
Medical tablets
100
100
100
100
100
100
100
100
100
98.7
95.8
97.5
98.1
98.1
96.9
89.4
87.0
83.0
0.0
1.8
1.1
0.8
0.6
1.5
8.4
10.3
14.1
Paint
- State
- Non-State
29
- Foreign
invested sector
1.3
2.4
1.3
1.1
1.3
1.7
2.1
2.7
2.9
Liquid medicine
100
100
100
100
100
100
100
100
100
- State
94.4
92.1
92.6
93.6
98.3
94.9
85.5
83.9
83.7
- Non-State
- Foreign
invested sector
0.0
0.0
0.5
0.3
0.1
2.3
4.5
7.7
7.9
5.6
7.9
6.9
6.0
1.6
2.7
10.0
8.3
8.4
Soap
100
100
100
100
100
100
100
100
100
- State
72.1
58.7
56.0
44.1
31.2
33.7
31.2
33.3
41.0
- Non-State
- Foreign
invested sector
10.1
12.0
15.0
11.4
12.7
10.6
12.2
13.6
8.8
17.8
29.3
29.0
44.5
56.1
55.7
56.6
53.2
50.2
Bicycle tyres
100
100
100
100
100
100
100
100
100
- State
85.3
78.8
82.6
69.4
74.3
69.1
65.1
61.7
61.4
- Non-State
- Foreign
invested sector
14.5
21.2
17.4
10.5
9.0
7.9
8.1
8.1
8.3
0.0
0.0
0.0
20.1
16.7
23.1
26.8
30.3
30.2
Bicycle tubes
100
100
100
100
100
100
100
100
100
- State
98.7
99.2
99.7
78.5
83.7
80.0
82.3
80.1
80.2
- Non-State
- Foreign
invested sector
1.1
0.8
0.3
1.2
1.0
1.0
0.7
3.7
3.7
0.1
0.0
0.0
20.3
15.4
19.0
17.0
16.1
16.1
Glass products
100
100
100
100
100
100
100
100
100
- State
31.2
21.5
24.4
8.6
9.5
9.8
8.0
5.3
4.3
- Non-State
- Foreign
invested sector
15.6
21.5
30.9
20.0
21.0
20.1
21.3
22.9
23.1
53.2
57.0
44.7
71.4
69.5
70.1
70.7
71.8
72.6
Personal porcelain
100
100
100
100
100
100
100
100
100
- State
9.6
7.3
10.0
8.8
7.4
7.5
6.8
9.3
9.4
- Non-State
- Foreign
invested sector
90.4
92.7
89.7
90.7
92.3
92.0
91.6
84.8
84.2
0.0
0.0
0.0
0.5
0.3
0.4
1.6
5.9
6.4
Industrial porcelain
100
100
100
100
100
100
100
100
100
- State
16.7
16.7
19.5
2.0
28.4
18.8
28.9
38.4
38.6
- Non-State
83.3
83.3
80.5
98.0
71.6
81.2
71.1
61.6
61.4
100
100
100
100
100
100
100
100
100
- State
16.3
21.4
24.0
25.2
24.7
26.0
26.0
25.0
25.1
- Non-State
- Foreign
invested sector
83.7
78.5
75.8
74.7
74.7
73.8
73.8
74.9
74.8
0.0
0.1
0.1
0.1
0.6
0.2
0.2
0.2
0.1
Tiles
100
100
100
100
100
100
100
100
100
- State
11.8
13.0
13.5
12.0
14.3
13.3
7.9
15.6
15.1
- Non-State
88.2
87.0
86.5
88.0
85.7
86.7
92.1
84.4
84.9
100
100
100
100
100
100
100
100
100
100
99.1
89.0
79.4
75.2
71.9
66.5
67.5
66.8
Bricks
Cement
- State
30
- Non-State
- Foreign
invested sector
0.0
0.9
0.5
0.1
0.1
0.7
1.6
2.5
3.0
0.0
0.0
10.4
20.5
24.7
27.4
32.0
30.0
30.2
Tile sheets
100
100
100
100
100
100
100
100
100
99.5
98.9
99.8
99.3
97.0
77.1
70.2
69.3
68.1
0.5
1.1
0.2
0.7
3.0
22.9
29.8
30.7
31.9
100
100
100
100
100
100
100
100
100
- State
97.1
98.2
100
100
30.0
10.5
13.6
11.5
11.4
- Non-State
- Foreign
invested sector
2.9
1.8
0.0
0.0
70.0
89.5
1.7
9.1
9.0
0.0
0.0
0.0
0.0
0.0
0.0
84.7
79.4
79.6
Steel
100
100
100
100
100
100
100
100
100
- State
84.7
57.9
49.7
46.8
37.0
35.8
36.3
31.8
33.6
- Non-State
- Foreign
invested sector
2.1
1.7
0.8
2.0
10.8
11.1
15.9
22.7
29.5
13.2
40.3
49.5
51.2
52.2
53.1
47.8
45.5
37.0
Agricultural pumps
100
100
100
100
100
100
100
100
100
60.3
100
100
78.0
36.5
20.7
23.9
27.1
27.1
0.0
0.0
0.0
22.0
63.5
79.3
76.1
72.9
72.9
Insecticide pumps
100
100
100
100
100
100
100
100
100
- State
88.5
96.8
99.4
98.8
99.4
98.7
98.3
97.1
96.7
- Non-State
11.5
3.2
0.6
1.2
0.6
1.3
1.7
2.9
3.3
100
100
100
100
100
100
100
100
100
- State
97.3
100
100
98.5
96.3
98.7
97.1
97.3
97.3
- Non-State
Threshing
machines
2.7
0.0
0.0
1.5
3.7
1.3
2.9
2.7
2.7
100
100
100
100
100
100
100
100
100
- State
17.3
17.2
16.5
4.9
0.3
0.6
0.1
0.0
0.0
- Non-State
Threshing
machines without
motor
82.7
82.8
83.5
95.1
99.7
99.4
99.9
100
100
100
100
100
100
100
100
100
100
100
- State
7.1
13.9
6.4
3.5
8.8
5.7
4.5
3.4
3.0
92.9
86.1
93.6
96.5
91.2
94.3
95.5
96.6
97.0
100
100
100
100
100
100
100
100
100
5.1
6.5
99.8
100
100
99.7
98.1
95.6
95.8
94.9
93.5
0.2
0.0
0.0
0.3
1.9
4.4
4.2
100
100
100
100
100
100
100
100
100
100
100
100
92.6
100
96.4
96.8
56.9
42.8
0.0
0.0
0.0
7.4
0.0
3.6
3.2
43.1
57.2
100
100
100
100
100
100
100
100
100
95.9
96.0
97.1
97.2
99.6
98.4
98.1
98.4
98.6
4.1
4.0
2.9
2.8
0.4
1.6
1.9
1.6
1.4
- State
- Non-State
Building glass
- State
- Non-State
Tractors and lorries
- Non-State
Rice mills
- State
- Non-State
Diesel motors
- State
- Non-State
Electricity rotating
engines
- State
- Non-State
31
100
100
100
100
100
100
100
100
100
- State
79.8
74.3
80.6
55.9
78.4
79.6
83.4
85.7
84.1
- Non-State
- Foreign
invested sector
0.0
0.0
0.0
24.9
13.6
16.0
6.6
7.0
8.1
20.2
25.7
19.4
19.2
7.9
4.4
10.0
7.3
7.8
Electric fan
100
100
100
100
100
100
100
100
100
- State
89.6
99.3
94.0
86.5
84.8
84.9
85.1
71.1
71.5
- Non-State
- Foreign
invested sector
Assembly
automobiles
6.1
0.0
5.4
6.2
6.6
7.4
9.9
22.7
20.6
4.3
0.7
0.7
7.3
8.5
7.7
4.9
6.2
8.0
100
100
100
100
100
100
100
100
100
- State
0.0
0.0
0.0
0.0
0.0
0.0
0.5
4.0
5.3
- Non-State
- Foreign
invested sector
0.0
0.0
0.0
0.0
0.0
0.0
1.1
1.5
1.6
100
100
100
100
100
100
98.5
94.5
93.1
Assembly motorbike
100
100
100
100
100
100
100
100
100
0.0
2.9
10.3
7.8
8.3
26.4
40.1
21.9
6.9
0.0
0.0
0.0
2.0
1.6
6.8
16.2
5.5
6.0
100
97.1
89.7
90.2
90.1
66.7
43.7
72.7
87.0
100
100
100
100
100
100
100
100
100
- State
78.8
63.2
31.2
17.6
17.3
15.6
15.7
11.2
9.3
- Non-State
- Foreign
invested sector
Assembly radiocassette
3.6
5.8
2.5
0.0
0.0
0.0
0.0
0.0
0.0
17.5
31.0
66.3
82.4
82.7
84.4
84.3
88.8
90.7
100
100
100
100
100
100
100
100
100
- State
- Foreign
invested sector
100
100
100
59.8
61.0
39.0
76.8
69.5
67.2
0.0
0.0
0.0
40.2
39.0
61.0
23.2
30.5
32.8
Building of coach
100
100
100
100
100
100
100
100
100
- State
0.0
0.0
0.0
0.0
0.0
100
47.5
100
100
- Non-State
0.0
0.0
0.0
0.0
0.0
0.0
52.5
0.0
0.0
100
100
100
100
100
100
100
100
100
- State
0.0
0.0
0.0
100
98.0
67.7
14.0
10.9
17.0
- Non-State
- Foreign
invested sector
0.0
0.0
0.0
0.0
2.0
2.8
0.9
0.9
0.6
0.0
0.0
0.0
0.0
0.0
29.5
85.1
88.2
82.4
Electricity
100
100
100
100
100
100
100
100
100
- State
99.9
99.9
100
99.9
99.9
93.6
93.1
94.1
96.8
- Non-State
- Foreign
invested sector
0.1
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
6.4
6.9
5.9
3.2
Running water
100
100
100
100
100
100
100
100
100
Transformers
- State
- Non-State
- Foreign
invested sector
Assembly television
set
Bicycles
32
- State
0.0
0.0
0.0
99.0
97.3
93.4
93.7
92.7
93.1
- Non-State
- Foreign
invested sector
0.0
0.0
0.0
1.0
0.9
1.8
1.3
2.9
2.8
0.0
0.0
0.0
0.0
1.8
4.8
5.0
4.4
4.1
The nature of market in Vietnam for some sectors is reflected in the Table 2.1.3.
Table 2.1.3 - The market in some sectors
Market
structure
State cartel
State
monopoly
Availability
of service
Reasonable
Good
Inland
waterway
shipping
Large barge:
Public sector
Small barge:
Private sector
Good
Price
Productivity
/Reason
High
Low
NA
Low
Depending
on location
Low
Insufficient
container
handling
capacity in
ports
Insufficient
cold storage
Ports/
Airports
Air Freight
Insufficient
management
leading to
insufficient
dredging and
lack of safety
environment
Road freight
Railways
freight
Power
Telecomm
unication
Private and
public trucks
State
monopoly
State
monopoly
State
monopoly
Good
Good
Unreasonable
with voltage
fluctuation
Delay in
new line
installation
Restrictions
on internetbased
business
tools
Competitive
Low
Adequate
Very low
Adequate
Very high
losses
Very high
Low
Insufficient
road
development
and
maintenance
Underused
railways
capacity
Insufficient
airfreight
facility in
airports
Delay due to
outdated
security
checks
Unsatisfactory
facilities and
handling
techniques
Source: Adapted from Philippe Auffret, Trade Reform in Vietnam: Opportunities with Emerging Challenges, Policy
Research Working Paper3076, The World Bank, 2003.
As mentioned earlier, in 2002, the foreign invested sector accounted for 13.8% of GDP.
Its share in value of imports and exports for the same year, however, amounted to 33.9% and
47.1% respectively (see Table 2.1.4 and 2.1.5). This shows that the international trade flows of
Vietnam has a positive correlation with the amount of FDI flowing into Vietnam, which also
means that domestic enterprises should compete more with foreign invested enterprises.
However, as shown in Table 2.1.4, because the import of consumer goods is restricted, consumer
goods produced domestically do not have to compete much with imported goods.
33
Table 2.1.4 - Value of imports by economic sector and by commodity group
1995
1996
1997
1998
1999
2000
2001
2002
Prel.
2003
100
100
100
100
100
100
100
100
100
82.0
18.0
81.7
18.3
72.4
27.6
76.8
23.2
71.2
28.8
72.2
27.8
69.3
30.7
66.1
33.9
65.1
34.9
84.8
87.6
89.9
91.5
91.6
93.8
92.1
92.1
93.6
25.7
59.1
15.2
3.5
0.9
10.8
27.6
60.0
12.4
2.9
1.9
7.6
30.3
59.6
10.1
2.1
3.1
5.0
30.6
61.0
8.5
2.4
2.8
3.2
29.9
61.7
8.4
2.5
2.3
3.6
30.6
63.2
6.2
1.9
2.2
2.1
30.5
61.6
7.9
3.0
2.0
3.0
29.8
62.3
7.9
2.5
1.8
3.6
32.4
61.2
6.4
TOTAL
By economic sector
Domestic economic sector
Foreign invested sector
By commodity group
Mean of production
Machinery,
instrument, accessory
Fuels, raw material
Consumer goods
Foodstuffs
Medical goods
Others
Table 2.1.5 - Value of exports by economic sector and by commodity group
TOTAL
By economic sector
Domestic economic sector
Foreign invested sector (*)
By commodity group
Heavy industrial products and
minerals
Light industrial and handicraft
goods
Agricultural products
Forest products
Aquatic products
(*)
1995
1996
1997
1998
1999
2000
2001
2002
Prel.
2003
100
100
100
100
100
100
100
100
100
73.0
27.0
70.3
29.7
65.0
35.0
65.7
34.3
59.4
40.6
53.0
47.0
54.8
45.2
52.9
47.1
49.6
50.4
25.3
28.7
28.0
27.9
31.3
37.2
34.9
31.8
31.0
28.4
32.0
2.8
11.4
29.0
29.8
2.9
9.6
36.7
24.3
2.5
8.5
36.6
24.3
2.0
9.2
36.7
22.1
1.5
8.4
33.9
17.7
1.1
10.2
35.7
16.1
1.2
12.1
40.6
14.3
1.2
12.1
39.8
11.3
Included crude oil.
Source: GSO, 2004.
2.2. Market structure and competition in some sectors
Vietnam, like other developing countries in the early stage of the market reform process,
does not maintain any official market share database for any sector or industry in its whole
economy. Certain statistics are available either with the line ministries, which are in charge of
specific sectors, or with the tax departments at both provincial and central levels21, or from other
private sources such as market research firms. However, even these data are not easily
retrievable. They are also inconsistent and there is no system to double-check their accuracy.
21
However, statistics kept by the tax departments are confidential by nature and cannot be disclosed to the public.
34
This section is compiled on the basis of information gathered from various sources to
give an idea of the market structure in some sectors of the Vietnam economy. Since data is
scarce and not quite reliable, quantitative measurement is not a focus. Indeed, the main point is
to bring out and analyse the nature of competition in each of these sectors/industries.
2.2.1. Manufacturing
2.2.1.1. Plastics
Plastics are a basic input into a wide range of final consumer goods and an essential
component in almost all industrial products manufactured in Vietnam. The plastics industry has
been one of the Vietnam’s fastest growing industries over the past few years with annual growth
rates of between 27-30 percent.
Vietnam’s plastics industry has reached output over one million tons, and in basic sectors
such as daily-use household plastics products, domestic producers are dominant players in the
market. At present, over 90 percent of household plastics sold in supermarkets are local products,
and account for 30 percent of the industry’s total output. Another product category that has
achieved strong growth and made up the largest production ratio (40 percent) is plastics
packaging. Almost all the packaging for food, foodstuffs, beverages, mineral water, seafood and
chemicals are produced locally. Despite its high annual growth rate recently, Vietnam plastics
industry must import 90 percent of its materials and currently produces few hi-tech plastics
products. Because raw materials, chemicals and additives represent between 60-70 percent of the
production cost, the reliance on imports leaves the industry with only a marginal added value.
Unlike most industries in Vietnam, the plastics
Import market for plastics products22
(Unit: US$ millions)
2000 2001
industry is dominated by private (mostly SMEs)
2002
companies (80), which are also the primary purchasers of
Import
47
60
79
equipments. However, the total capital invested by these
Local production
8
11
14
SMEs accounts for 45 percent of the whole industry. The
Export
SOEs account for 6 percent in number while representing
Total market
55
71
93
20 percent of total capital invested, while the rest is
made up from foreign invested enterprises. The largest plastics corporation in Vietnam is
VINAPLAST, an SOE accounting for a 23 percent share of the total market. VINAPLAST owns
19 smaller companies, of which two companies have entered into joint-venture operations with
Asian companies to produce DOP and PVC in Vietnam. SOEs offer a wide range of products:
home-use products, construction, and technical plastic products. In the low-end market, nearly all
22
Based on figures from Industry Sector Analysis on the Plastics Industry of Vietnam made by STAT-USA
(http://www.stat-usa.gov/), 2004
35
the private plastic companies, which account for 80 percent of total number of companies in this
industry, are unable to produce high-standard products.
Local production of plastics materials currently satisfies 10 percent of the plastics
industry demand and is expected to increase to 30 percent by 2005. Local producers benefit from
competitively priced raw materials, which are all free of import duties and are not restricted by
quotas or other NTBs. Competitive prices of these inputs have enabled domestic producers of
plastics consumer products to compete against imports, and thus come to dominate the largest
part of the domestic market. Producers of final consumption goods made from plastics benefit
not only from low cost and reliable supplies of raw materials, but also from import duties on
final products of 20% to 40%.23 Besides, the “natural protection” provided by transport costs
alone is sufficient to shelter domestic producers from foreign competition. Competition among
the numerous domestic producers of most basic consumer products results in market prices,
which are far below the world price plus tariff.
2.2.1.2. Automobiles
Vietnam's automobile industry is small and underdeveloped compared with others in the
region. The local assembly industry, which employs around 7,500 workers, is heavily reliant on
imported parts and is focused solely on serving the domestic market.
At end-2003 there were an estimated 530,000 vehicles on the road, of which around 75
percent were imported as completely built-up (CBU) units. This is because motorcycles remain
the most popular and affordable mode of transport.
The local assembly industry, which is dominated by 11 foreign-invested joint ventures
(JVs), had sold only around 173,000 vehicles by end-2004. After a prolonged lull in the late
1990s, sales of domestically produced vehicles more than doubled year on year to around 14,000
units in 2000. Annual sales volume continued to rise in 2001-03, reaching over 42,500 units in
2003, before falling back to just over 40,000 units in 2004. The total registered investment
capital of the eleven companies is about US$550mn. Total production capacity at the time of
registration was 148,900 units per year, far above current market demand.
Although the Vietnam economy has expanded rapidly in recent years, GDP per capita
was equal to only US$483 in 2003. Use of automobiles as personal means of transport, therefore,
remains limited to the minority affluent section of the society, mainly in big cities like Hanoi, Ho
Chi Minh City, Haiphong, Danang, etc. The current sales volume by JVs is only around 30
percent of their registered production capacity, which led to exorbitant production costs, and
subsequently high prices. The high price of assembling components due to import tariffs all
In addition, the high bulk-to-value ratio of many plastic consumer products provides considerable “natural
protection” against imports.
23
36
contribute to making the vehicles produced in Vietnam the most expensive in the world. A
Toyota Corolla, for example, is priced at US$25,500 in Vietnam, while it is purchased in
Thailand at US$22,000.
The GOV has always been trying to
Market share of 11 auto JVs by sales (%)24
strengthen domestic players in the industry and
Company
2001
2004
encourage
Toyota
29.4
22.8
Vietnam to source parts and components locally,
Vietnam Daewoo Motor
14.9
12.7
which results in a series of protectionist measures
Ford Vietnam
9.8
14.0
such as imposition of top-rate import tariff on
Mercedes Benz Vietnam
9.6
-
CBUs (of 25% - for cars with five seats or fewer),
Vietnam Motor Industry
9.2
-
Vinastar Motor Corp.
8.2
13.4
Vietnam Suzuki Corp.
7.7
-
Mekong Auto Corp.
4.4
-
Isuzu Vietnam Co.
3.8
-
Vietnam Jaihatsu Motor
2.4
-
Hino Motor Vietnam
0.5
-
current
automobile
companies
in
and double value-added tax (VAT) (to 10%) on
such units, and introduction of heavy cut on the
special consumption tax (SCT) breaks applied to
locally assembled cars, as compared to those
applied to imported CBUs. However, the domestic
players, which till date include some 20 local auto
firms and more than 60 parts suppliers, are still struggling to live up to the high expectations of
the government. Most recently, some large-scale enterprises amongst the domestic players have
turned to mass-production of Chinese-made cheap trucks and buses in an effort to compete
against cars assembled by the 11 big JVs. The Truong Hai Auto Co., the Transport Investment
Cooperation and Import-Export Corporation (Tracimexco) and the Dai Cat Tuong Joint Stock
Co. (Dacata), in April 2005, introduced some Chinese truck models whose prices are only 50-60
percent of the similar products made by South Korean, Russian and Japanese firms. Currently,
Suzuki, Isuzu and Hino are the leaders in the market for light trucks, while Mercedes-Benz saw a
remarkable rise in minibus sales [297 units], accounting for 50 percent of the local minibus
market. In the year to come, competition will become much fiercer and possibly prices will go
down to the benefit of the consumers.
2.2.1.3. Motorcycles
The motorcycle industry in Vietnam grew briskly since 1999. Between 1999 and 2002,
the market size multiplied by nearly six times. Measured by the number of vehicles produced,
Vietnam now ranks eighth in the world’s motorcycle market.
The number of licensed motorcycles in Vietnam
Year
Motorcycles in the
Sales within
24
Compared to
Compared to
Figures are based on International Market Insights on the Automobiles Industry of Vietnam prepared by STATUSA (http://www.stat-usa.gov/), 2002 and the Economist Intelligence Unit’s Executive Briefing on Vietnam, 2005.
37
1999
whole country
5,549,267
year
343,139
1999 (%)
100
previous year (%)
-
2000
6,387,207
837,939
244
244
2001
8,359,042
1,971,835
576
235
2002
10,273,659
1,914,617
558
97
2003
11,546,682
1,291,023
376
67
Source: Traffic Police Department, Ministry of Public Policy
Since per capita income growth has been relatively steady at about 7% in recent years,
the critical factor behind the rapid growth of the Vietnamese motorcycle market was the dramatic
price decline from about US$2,200 on average in 1998 to US$630 in 2001 caused by the entry of
low-priced motorcycles assembled from Chinese components. The market segment of highpriced products (more than US$1,000) has increased only slightly while that of low-priced
products (less than US$1,000) has greatly expanded.
Motorcycle producers in Vietnam can be divided into two groups: foreign-invested JVs
such as Honda, Yamaha, Suzuki, and Taiwan’s Sayang Motor (whose Vietnamese subsidiary is
called SYM or VMEP) on the one hand and Vietnamese domestic makers on the other. Market
shares among these producers fluctuated significantly since 1999 when domestic motorcycle
assemblers started operation. Most of the Vietnamese domestic companies entered the market by
importing and assembling components from China. It was only later when this industry rapidly
developed in Vietnam that they began to purchase parts from domestic producers. Vietnamese
domestic companies penetrated low-price market segment until 2002 when Honda fought back
and recovered its market share in this segment. In the rapidly expanding Vietnamese market, FDI
and domestic companies have competed fiercely and their relative market shares have fluctuated
greatly.
38
Market share of motorcycle producers in Vietnam by sales
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1995
1996
1997
Honda
1998
"Chinese"
1999
VMEP
2000
Yamaha
2001
Suzuki
2002
2003
Others
2.2.1.4. Garment and textile
The sector consists of over 1100 enterprises - 187 state owned (70 textile enterprises and
117 garment enterprises), nearly 800 private, join-stock and limited liability (nearly 600 garment
units and 200 textile units), and approximately 180 joint-venture and 100% foreign invested
companies operating in yarn, textile, dyeing, wool knitting, garment, sewing machine parts.
Individual tailors and small enterprises currently serve much of the domestic garment market.
Most medium and large garment enterprises are export oriented. The industry is dominated by
VINATEX, a corporation of 60 state-owned enterprises that takes up over one-third of all textile
and garment exports of the country. A significant component of VINATEX's member firms are
vertically integrated, from spinning and weaving to final garment production, which is not seen
in the private or FDI segments of the Vietnam's textile and garment industry.
Some indicators of Vietnam's Textile and Garment Industry (In percentage)
1996 1997 1998 1999 2000 2001 2002 Average
T&G/GDP
3.6
3.7
3.6
5.3
5.9
6
6.2
4.9
T&G/Total Industry
8.3
8.6
8.6
8.1
8.1
7.7
7.5
8.1
T/Total Industry
5.4
5.4
5.5
5
5.1
4.7
4.4
5.1
G/Total Industry
2.9
3.2
3.1
3.1
3
3
3.1
3.1
T&G/Manufacturing 10.3 10.8 10.8 10.2 10.2
9.5
9.1
10.1
T/Manufacturing
6.7
6.7
6.9
6.3
6.4
5.8
5.3
6.3
G/Manufacturing
3.6
4
3.9
3.9
3.8
3.7
3.8
3.8
Source:GSO
39
The local market is currently influenced by small local manufacturers who produce their
products on so-called “home industry sites”25. These household economic units often work on a
‘made-to-measure’ basis or produce small series of products according to past buyers’ requests.
The quality is very basic and only meets local consumer demands in terms of quality, fashion,
and price-value ratio.
In general, it is estimated that local manufacturing sites supply about 70-75 percent of the
local market. Approximately 10-15 percent of all imports are “grey imports,” mainly from China,
as compared to around 5 percent for legally imported garments from Hongkong, Korea, EU/ US
or Singapore. Around 5-10 percent of the market is supplied by second-hand clothing, which
comes to Vietnam via aid projects or as smuggled goods from China; while the remaining 10-15
percent are products made for the export-oriented business but sold in the local market.
Shares of local market coverage
10%
5%
8%
8%
69%
Grey Imports
Legal imports
Export manufacturers
Local manufacturers
Second-hand clothing
The local market for Vietnamese garment manufacturing companies is strongly
influenced by large imports of low-price products from China. These products are specifically
manufactured for export, which is chiefly oriented towards the regional markets (Vietnam, Lao
PDR, Cambodia etc.). They come through the border between China and Vietnam, mainly as
“grey imports” for which no import duties are paid. This kind of products, the quality of which is
mostly quite poor, are sold by importers to small retailers and street markets.
The business is very hard to survey and identify since import/ export business is in the
hands of hundreds of small traders operating mainly in the unofficial/ informal sector. Import
duties are based on ‘good relations’ with custom officers, and the will to pay bribes and
‘handling fees.’ Retail is dominated by small family companies and street market stalls. The
market share of large distribution organizations such as department stores and chain stores is at
approximately 5-10 percent, still small. From an organisational point of view, these distribution
25
MPDF, Vietnam’s Garment Industry: Moving Up the Value Chain, Private Sector Discussion Paper No. 7, 2000
40
systems are still weak. No statistics, data or numbers are available relating to the retail structure
of the local market.
2.2.1.5. Cement
There are three main segments in Vietnam's cement industry: (i) The Vietnam Cement
General Corporation (VNCC) under the guidance of the Ministry of Construction (MoC); (ii)
Joint-Ventures (JVs); and (iii) Local state-owned enterprises, army enterprises, and domestic
private enterprises. The Vietnam Cement General Corporation is currently producing nearly one
half of Vietnam's cement production output. JVs account for 30 percent of the market share and
locally managed cement companies produce about 20% of market share. Currently, the cement
industry has 13 plants with an investment of over USD3774 million providing more than 18
million tonnes of cement per year. With over 20 cement plants under construction having the
total capacity of more than 30 million tonnes and the existing exploitation rate, by 2008, the
cement industry will be able to supply an additional amount of 18 to 20 million tonnes of cement
per year.
VNCC, under the MoC’s umbrella, manages all major state-owned cementmanufacturing units. Under VNCC, there were, in 2000, six factories in operation with a total
capacity of 6.32 million tons. In 2001, the GOV asked VNCC to take over the failing Hoang Mai
cement factory in Nghe An. In 2003, VNCC managed 10 cement-producing companies, 05
services companies and 01 training centre.
There are, since 1992, five JVs - Chingphong (Taiwan - 1.4 million tons), Van Xa
(Hongkong - 0.5 million tons), Sao Mai (Holder Bank Switzerland - 1.4 million tons), Nghi Son
(Japan - 2.14 million tons) and the Phuc Son cement factory. The JVs have a total capacity of
5.440 million tons. Foreign invested cement producers are better equipped with modern
technologies and efficient management regimes. They therefore supplied high-quality cement at
lower costs than what supplied by the SOEs.
In addition to VNCC and the JVs, there are until now 55 small producers using vertical
oven technologies imported from China, with the capacities of each between 5,000 – 82,000
tons/year in the whole Vietnam. Provincial Peoples’ Committees, Peoples’ Army units and some
private companies are the owners of these factories. Their energy efficiency level is low; quality
of cement is not high and not stable. The production activities also create severe dust and gas
pollution. Nevertheless, the cement price of these producers is lower than that of VNCC; the
quality is acceptable for some local projects like concreting over roads or irrigation channels.
These small producers occupy the lowest end of the market and focusing mainly on meeting the
local (district or provincial) demand. Their production, in 2001, reached 1.5 million tons and
their market share was around 20 percent.
41
VNCC has a clear predominant position in the cement market. Its position based not only
on the large market share, but also on its exclusive network of filiales, subcontracted distributors,
and shops in the major cities. VNCC also benefits a great deal from its special relations with the
MoC. There have been reported cases of biased protection and favouritism. For example, based
on VNCC’s proposal, which was supported by the MoC, since 1997, Vietnam has introduced
quotas for cement imports. Cement imports have been actually coming to the end since 1999.
After that, there has not been any cement import recorded. But clinker imports are flourishing on
the quotas provided by the MoC to some SOEs under its management. Because of the high
difference between domestic cement price (US$57 - 60/ton) and the international market price
for clinker (US$16-18/ton), this has turned out to be an extremely profitable business. Clinker
imports have been increasing since 1999 and reached 1.5 million tons in 2001 and 3.45 million
tons in 2002.
2.2.1.6. Fertilisers
The state sector is still the dominant position in the production of chemical fertilizers
(with a market share of 98.1-100% during 1995-2003). The main producer of chemical fertilisers
in Vietnam is the state-owned General Corporation for Chemicals VINACHEM. It produces 75
percent of the total domestic fertiliser production, and 95 percent of the domestically produced
urea and phosphate production. Vinachem has 44 members companies, which includes 08
companies producing phosphate and nitrogenous fertilisers and raw materials, 12 companies and
05 JVs producing NPK (Nitrogenous, Phosphate, Potassium)-mixtures. Non-state companies
produce only NPK-mixtures and bioorganic fertilisers. Vinachem contributes around 40 percent
of the total NPK supply.
The only domestic urea producer is the state-owned Ha Bac Chemical Fertiliser
Company, a Vinachem member company. Ha Bac Chemical Fertiliser Company was established
with Chinese assistance in the 1960, producing urea on the basis of coal exploited in the Quang
Ninh mines, with a production capacity of 60,000 tons/year. In 2003, a modernisation and
expansion project of the very same company using Chinese ODA credit was undertaken,
increasing the company’s capacity to 160,000 tons/year. This is still hardly enough for the local
demand and Vietnam’s supply of urea large comes from imports.
There are 76 producers of bioorganic fertilisers; most of them are linked with sugar
refineries, processing wastes extracted from the sugar cane production process.
Vietnam’s domestic fertiliser production is improving gradually but still fails to meet the
planned target of 900,000 tons of urea in 2005 set by the Ninth National Congress of the CPV.
Moreover, the local demand is much higher than the domestic production. Therefore, Vietnam is
highly dependent on imports to cover the domestic demands. In 2004, Vietnam has to import
42
annually around 2 millions tons of urea, 0.3-0.4 millions tons of diammonium phosphate (DAP)
fertiliser and 0.2-0.3 millions tons of potassium fertiliser in order to cover the rapidly increasing
demand of the domestic market and ensure growing agricultural production. Domestic fertiliser
prices continue to depend hugely on world prices. Fertiliser import tax currently stays at 5%.
Fertiliser imports in the years 1999-2003 (millions tons)
1999
1948
Urea
300
Ammonium Sulfate (SA)
400
Diammonium Phosphate
(DAP)
300
NPK
400
Potassium
Total
3300
Source: Ministry of Trade, 2003
2000
2184
436
591
2001
1709
352
535
2002
1907
549
600
2003
2100
500
700
200
531
3866
157
520
3174
243
633
3825
150
600
3900
2.2.1.7. Steel
Steel is another very important input for many construction and manufacturing industries
in Vietnam. The steel market seems to have a competitive balance between the State sector and
foreign invested sector. The participation of the non-State sector in production of steel changed
very quickly, from 2% in 1998 to 10.8% in 1999 and to 29.5% in 2003.
Though a heavily-invested industry, until recently, Vietnam’s steel industry still fails
short to cover the local demand. It continues to have an imbalance between upstream (crude steel
production) and downstream (rolled steel production), and is currently 80 dependent on imported
billets. In 2003, Vietnam imported about 4.5 million tons of iron and steel products (at
US$1.6bn), of which 1.8 million tons was crude steel in the form of billets (approximately
US$485mn), to meet the domestic demand for crude steel by its growing number of rolling mills.
The import volume of steel
Unit
Iron,
steel
Thous.
tons
1995
1996
1997
1998
1999
2000
2001 2002
Prel.
2003
1116.2 1548.5 1400.9 1786.0 2253.6 2845.0 3870 4946 4574
Source: GSO, 2004
The steel industry comprises of three main segments: (i) The Vietnam Steel Corporation
(VSC) (wholly owning 06 factories), which has a total registered capacity of 760,000 tons/year
43
and holds a current market share of 40 percent in 200426; 12 JVs with a total registered capacity
of 850,000 tons/year; and some 50 private businesses with a total capacity of 400,000 tons/year.
As of now, there is
still much room for more
market
participation,
Meeting the domestic demand for steel products (1991-2000)
Year
Production
Domestic demand
(Thousand tons) (Thousand tons)
1991
149
350
Production vs.
Domestic demand (%)
42.5
particularly new producers’
1992
196
540
36.3
entry. Despite its predominant
1993
243
800
30.3
market share of 40, VSC does
1994
280
990
28.2
not have strong control over
1995
450
1,100
41.0
steel price in Vietnam and
1996
900
1,400
64.0
domestic prices continue to be
1997
1,050
1,700
62.0
strongly affected by world
1998
1,150
1,900
61.0
1999
1,300
2,300
57.0
2000
1,400
2,400
58.0
2004
2,730
5,000
54.6
prices, especially prices of
ingots.
2.2.1.8. Sugar
Sugar is an important
Source: Ministry of Planning and Investment
agrarian product as food, especially for children, elder and sick peoples, and as raw material or
ingredient for food processing and soft drink industry. In Vietnam, sugar cane has been
cultivated since the beginning of the 20th century and refined mainly in the traditional technology
to brown sugar. Farmers and rural population traditionally used brown, manually processed or
raw refined sugar. Industrially refined raw sugar (RS) and refined sugar (RE) has been produced
in increasing amount since 1960s, in both North and South Vietnam, but could not fully cover
the rising demand.
By 2002, 44 new state-owned sugar refineries have been constructed or modernised and
put into operation. Their total projected capacity reached 82,950 tons of sugar cane per day, an
increase of 800 compared to that of 1994. Thirteen refineries, with a total projected capacity of
27,350 tons of sugar cane per day (amounting to 33 percent of the total capacity of the whole
country), are located in North Vietnam. In Central Vietnam and the Central Highland, there are
16 refineries with a total projected capacity of 24,450 tons of sugar cane per day (corresponding
to 29.5 percent of the total capacity of the whole country). Fifteen refineries, with a total
projected capacity of 31,150 tons of sugar cane per day (sharing 37.5 percent of the total capacity
of the whole country) are located in South Vietnam.
26
See http://www.mof.gov.vn/DefaultE.aspx?tabid=356&ItemID=19792 for more details
44
Sugar refineries in Vietnam at a glance
Type of ownership
Number
16
19
03
Total projected capacity
(tons of sugar cane per
day)
20,850
24,600
-
Share in the total
capacity of Vietnam
as a whole (%)
25.1
29.6
12.8
Share in total
capital
investment (%)
11.4
36.3
7.7
Central SOEs
Provincial SOEs
Former SOEs,
equitised
Foreign invested or
100 foreign owned
06
27,000
32.5
44.6
Until 2000, Vietnam still had
to import a large amount of sugar to
meet the domestic demand. Entering
2002-2003, the picture has changed
Import of sugar
1995 1996 1997 1998 1999 2000
Million US$
61
5
32
7
22
Thousand tons* 147
16
123
43
65
Source: GSO Statistical Yearbook 2002, Customs
drastically with supply exceeding demand by 100,000-200,000 tons, not counting the smuggled
amount via the Southwest border27. Over time, with more stable supply and a rather competitive
market structure, the domestic sugar prices have constantly fallen. By 2003, the domestic retail
price of RE sugar has dropped from VND7,000/kg to VND5,000/kg and the factory-gate prices
fell drastically from VND4,000/kg to VND3,600/kg. Vietnam now has a good stock of sugar to
be independent from imports, as well as to shield the domestic markets against hoarding and
speculation.
2.2.1.9. Soft drinks, beverages, wines, spirits and coffee
The state-owned beverages company Vinabeco (Vietnam Alcohol, Beer and Beverage
Corporation) controls a large share of the beer market, with the largest breweries under its
control, Saigon Beer Company (which brews the Saigon and 333 beer brands) and the Hanoi
Alcohol-Beer and Beverages Corporation (Habeco, which brews Hanoi Beer). According to the
General Statistics Office, nearly 1.2bn litres of beer were produced in 2004, up by around 6
percent year on year. Of this total, the state-owned sector accounted for around 63 percent, with
the foreign-invested sector accounting for around 26 percent. The local private sector accounted
for the remainder.
There are a number of foreign beer producers in Vietnam operating under licences with
joint-venture partners and producing beer in the premium segment, which accounts for around 15
percent of total beer consumption. The most successful foreign-invested joint venture is Vietnam
Brewery, a joint venture between Vietnam's Ho Chi Minh City Food Company and Singapore's
Asia Pacific Brewery. The brewery controls the premium-beer segment with Heineken and Tiger
Beer brands. Other brands in the premium segment include San Miguel and Carlsberg. The San
27
The trouble is the smuggling amount is to go on rising despite efforts in smuggling prevention.
45
Miguel Corporation has been producing its San Miguel label at the Nha Trang-based San Miguel
Brewery Vietnam through a joint venture with Vietnam's Khanh Hoa Brewery. Carlsberg of
Denmark holds a 60 percent share in South-East Asia Breweries, a joint venture with Viet Ha
Breweries, which brews the premium Carlsberg brand and the local Halida brand, as well as a 50
percent share in Hue Brewery, which brews another local brand, Huda. Cheap brandless fresh
beer, known as ‘bia hoi’, is estimated to account for around 20-25 percent of the market and is
consumed by the low-income sector.
Local brands dominate the wine and spirits sector. Domestically produced wine and
spirits accounted for 70 and 90 percent of total volume sales in 2001 respectively. There are two
main vodka producers in Vietnam, the state-owned Ha Noi Alcohol Company and Binh Tay
Alcohol Company. The annual production capacity of both the companies is 5-6 million litres of
alcohol, but the vodka is not considered to be of high quality and is expensive. The output of
other local alcohol producers is 100,000-500,000 litres per year. Two main rum producers are
Bien Hoa (Vietnam) and Hiep Hoa Sugar Company (Vietnam).
The soft-drinks market is mainly focused on carbonated drinks. The dominant player is
Coca-Cola Indochine, which operates through three wholly owned subsidiaries—Coca-Cola
Beverages Hanoi, Coca-Cola Beverages Vietnam (in Ho Chi Minh City) and Coca-Cola Non
Nuoc Soft Drinks Company (in Danang)—and controls about 65 percent of the carbonated softdrinks segment. International Beverages (owned 30% by PepsiCo of the US, 30% by Macondray
of Hong Kong and 40% by a consortium of state-owned Vietnamese companies) is another key
player in the carbonated soft-drinks sector.
Coffee is now widely perceived as a national drink. Vietnam's coffee output has
expanded rapidly in recent years—in 1997 Vietnam overtook Indonesia to become the largest
coffee exporter in the Asia region, and in 2000 it became the second-largest exporter (by
volume) in the world, after Brazil. Although coffee growing has become unprofitable in Vietnam
owing to the rapid expansion in output in the past decade, the coffee-shop segment has been
flourishing. Trung Nguyen (Highland) Coffee Enterprise now runs a popular network of more
than 400 cafes across Vietnam, selling its trademark coffee. There are two other instant-coffee
producers, Vinacafe Bien Hoa and the Swiss food conglomerate, Nestlé.
The state-owned Vietnam Dairy Company (Vinamilk) is the largest milk producer and
controls around 75 percent of the market. However, foreign-invested dairy producers such as the
Singaporean-owned F&N Vietnam Food are expanding their production bases in Vietnam.
46
2.2.1.10. Cigarettes
Vietnam is a net importer of tobacco and tobacco products. Almost 60 percent of the
demand for tobacco is met through imports, and in 2003 imports of cigarette materials totalled
more than US$165mn.
According to the General Statistics Office, in January-November 2004, central SOEs
produced 2.2bn packets of cigarettes out of a total market production of 3.6bn packets. The
Vietnam National Tobacco Corporation (Vinataba) is the largest cigarette manufacturer in the
country, with a market share of around 55 percent. A number of foreign cigarette manufactures
are also present in the domestic market through co-operation agreements or joint ventures with
Vinataba, and these account for nearly 20 percent of the market.
British American Tobacco (BAT) of the UK has a market share of more than 10 percent,
mainly with its 555 brand. BAT was granted a licence to operate in Vietnam in 1994, and in June
2001 it was granted a licence by the Vietnamese government to establish a JV with Vinataba to
process tobacco. As a result, BAT invested US$40mn in the construction of a tobacco-processing
factory in Dong Nai. Imperial Tobacco and Rothmans of Pall Mall (UK), Philip Morris (US) and
International Japan Tobacco are other leading foreign cigarette manufacturers with a presence in
Vietnam. Cigarette imports are banned, but estimates of the degree of cigarette consumption
accounted for by smuggled products range from 10 percent to 20 percent.
All tobacco products are subject to a special consumption tax (SCT). The SCT rate
applied to cigarettes without filters is 25%; filter cigarettes made from domestic materials incur a
rate of 45%, and those made with imported materials are subject to the highest rate of 65%. A
value-added tax rate of 10% is also applicable to all tobacco products.
2.2.1.11. Pharmaceuticals
Vietnam’s pharmaceutical production has increased continuously during the past few
years by an average of 15 percent per year. The total pharmaceutical output has risen from
VND1035bn (US$65mn) in 1995 to VND3289bn (US$219mn) in 2002 and VND3765bn
(US$251mn) by the end of 2003. The medicine consumption per capita has increased to US$7.6
per year by end 2003 from only US$0.3 in 1990, and USS$5.4 in 2000. The medicines produced
in Vietnam are also picking up in quality and diversification. In 1995, the local pharmaceutical
sector could produce only 80 substances, whereas in 1997 175 substances, in 2001 365
substances and in 2002 384 substances were produced. The government permitted the sale of
pharmaceuticals outside the public healthcare system in 1989 and by 2003; the value of annual
sales of the over-the-counter (OTC) drugs had reached an estimated US$150mn. A key problem
facing the industry is the large number of unlicensed pharmacies that sell poor-quality products.
47
Competition in the pharmaceutical sector has increased in line with the influx of foreignowned companies. In addition to the local pharmaceutical industry, which includes some 20 big
state-owned enterprises, there are already 08 JVs and 16 wholly foreign invested projects with a
total registered capital of US$172mn in operation in the sector. The SOEs account for around 65
percent of domestic production of pharmaceuticals, followed by the JVs (20%) and then FIEs
(15%). There are more than 10,000 registered drugs in Vietnam, of which more than 6,000 are
made locally. Antibiotics, vitamins and pain relievers make up most of the domestic production.
Some high quality medical products such as Artemisin, Amoxycillin, Apicillin have
already been produced in Vietnam. However, as reported by the Vietnam Pharmacy Management
Department, imports of drugs remain high, accounting for around 64 percent of the medicines
consumed on average. In 2002, Vietnam’s volume of drug imports as well as raw materials for
drug manufacturing was worth of US$418mn. In 2003, the total turnover in the pharmaceutical
sector was US$606.70, domestic production made up US$241.88. Imports stood at US$366.82,
amounting to 60.3 percent of the total market. France and Singapore are the leading suppliers of
imports, and India the main supplier of generic drugs. Supplies of counterfeit and smuggled
drugs are also high. In an effort to encourage onshore foreign production and protect local
pharmaceutical manufacturers, the GOV has drawn up a list of restricted drug imports that
contain any of 62 named ingredients.
Pharmaceuticals in Vietnam
Unit
1997
1998
1999
2000
2001
2002
Domestic production
Million US$
92.3
105.2 121.5
152
184
219.2 264.5
Market sale
Million US$
387
415
361
398
417
457
480
Expenditure per capita
US$
5.2
5.5
5.1
5.4
6.1
6.7
7.6
-
-
-
325
Imported of finished drugs Million US$
2003
328.6 349.7 374.2
Statistics show so far that the number of businesses dealing with pharmaceuticals has
increased continuously. By the end of 2003, the national market comprised of 590 private firms,
24 projects with foreign investment capital and 20 big state firms, in addition to more than
10,500 pharma retailers. Prices for pharmaceutical products have increased sharply in recent
years, rising by around 30 year on year in 2003 and by nearly 10 in 2004. In an effort to protect
consumers from unfair pricing of medicine, the government has been seeking ways of controlling
prices. In August 2003 it introduced a circular that outlined new regulations requiring
pharmaceutical producers to register and list the imported, wholesale and retail prices of their
products. In late 2004, the National Assembly debated proposing a pharmaceutical bill that
would give the state more control over the pricing of pharmaceuticals.
48
2.2.2. Services and utilities
2.2.2.1. Electricity
Electricity demand in Vietnam has increased significantly in recent years. Commercial
electricity consumption reached 34.8bn KWh in 2003, 15.3% higher that of 2002 and 40.8bn
Kwh in 2004, 17.2% higher than 2003. Although the total installed capacity of all generators has
increased from 8,280 MW in 2001 to 11,298 MW in 2004, electricity supply is still insufficient.
Vietnam’s power industry is relatively small as compared with other countries in the
region, with an electricity consumption level per head of about 390 kwh (China-1530 Kwh and
Thailand-1980 Kwh). However, one main reason why the level of electricity consumption per
head is still low is because almost 15mn people do not have a stable electricity supply. There
remain 2% of the number of districts in Vietnam and 7% of communes of the whole country that
do not have access to the national transmission grids.
At present, the electricity sector in Vietnam is solely managed by Electricity Corporation
of Vietnam (EVN), a state-owned monopoly. EVN has been working on plans to commercialise
and decentralise its operations by dividing its organisation into three independent groups:
generation, transmission and distribution. Each group would consist of independent companies,
which might be equitised with the government retaining the majority shareholding. The power
generation market may be divided into 5 main segments: (1) Consulting services, (2) Installation,
construction and engineering services, (3) Machinery, equipment and materials, (4) Supply of
equipment, spare parts, materials, consumables and overhaul & maintenance services, and (5)
Investment in new power projects in the form of Independent Power Producers (IPP), BuildOperate-Transfer (BOT), Build-Transfer (BT), Build-Transfer-Operate (BTO), and Joint
Ventures (JVs).Presently, there are 46 operational generation plants in Vietnam and 14 of them
are under the Electricity Corporation of Vietnam (EVN). EVN’s share in the total installed
generation capacity has declined recently but is still as high as 85 percent. In addition to the
electricity generated domestically, Vietnam imports a small volume of electricity from China
(about 40 MW). Transmission is still under State monopoly, with 4 transmission companies of
EVN operating in different regions of the country. In the distribution segment, the types of
management and distribution activities are very diversified. Eight power companies of EVN
distribute electricity to 30.8 percent of all communes within Vietnam; 54 state enterprises serve
3.0 percent; 572 limited, shareholding, and private enterprises serve 2.4 percent; cooperatives
reach 50.2 percent; and district and commune electricity boards serve 12.7 percent.
To generate sufficient earnings for reinvestment and self-sufficiency and to become
financially sound, the Government has to raise the current subsidised electricity price from 5.1
49
US cents to 5.6 cents (Oct. 1, 2001), 6.0 cents (July 1, 2002), 6.4 cents (July 1, 2003), and 6.8
cents (July 1, 2004).
Foreign companies are forbidden by law from establishing their own distribution
networks in Vietnam, but they can engage in the power generation sector. Over the last decade,
EVN was the only buyer and end-user in the power generation sector, which made the
procurement less transparent, open and competitive. EVN is still the largest buyer and end-user,
estimated to hold more than 85% of the purchasing power. Recently, however, more open
policies in the industry, including the introduction of a number of BOT and IPP power projects
where procurement tend to be driven more by economic factors, has presented new opportunities
for foreign companies to compete on a more equal basis.
2.2.2.2. Telecommunication
The Vietnamese telecom sector has experienced exceptionally high growth rate
since the early 1990s and has been ranked as the second fastest developing market in the world
according to the International Telecommunication Union (ITU). The telecom service market has
had record expansion in 2003. Compared with 2002, the number of subscribers increased from
around 3,700,000 to 4,300,000 in the fixed lines, from 1,900,000 to 3,000,000 in the mobile
services, and from 490,000 to 860,000 in Internet services.
a) Network and fixed line services
Before 1995, VNPT was the only network and fixed line operator in Vietnam. Since
1995, five more telecom enterprises have been allowed to run telecom network: two new entrants
in 1995 and three more in 2001. Three of six current network carriers are permitted to construct
and run the national backbone and international gates for long distance and international calls
and the other three only to build the local networks. In effect, competition has just been in
existence in the market few years ago. In fixed line network, the new entrants have received
licenses to construct fixed network for local and long distance calls in mid 2002 and international
calls in 2003. As of the end of 2003, there were only two enterprises providing the fixed line
services: VNPT with nearly 3.4mn subscribers and SPT with only 24,000 subscribers. As the
new entrants remain in the early stage of network construction and are still introducing new
services at small scale, there is no real direct competition in the fixed line services at present.
However, the fixed line services by VNPT have started facing indirect competition since 2000
when the long distance VoIP telephony was introduced.
b) Mobile network and services
Until recently, there were three mobile networks in operation in Vietnam and all of them
belong to VNPT. The first cellular phone system was introduced in Vietnam in 1992 by Call-link
under the business cooperation contract (BCC) between Hochiminh City Post and Telecom
50
(SPT) and Singapore International Telecom Company. In 1995, Mobifone was formed in the
form of BCC between Comvik AB from Sweden and the Vietnam Mobile Services Company
(VMS), which is a full subsidiary of VNPT. VinaPhone, which is a fully Vietnamese-operated
network, was introduced in 1996 by another 100 percent subsidiary of VNPT, that is Vietnam
Telecom Services Company (GPC). Four more enterprises have been allowed to provide mobile
phone services since then. In 1998, Viettel were allowed to build and operate its mobile network
and actually started its network in October of 2004, after more than one year of trial operation.
SPT, which is a BCC between SPT and SLD Telecom from South Korea, introduced the S-Fone
network in July 2003, after two years of preparation. Hanoi Post & Telecom launched the
Cityphone network in December 2002 and expanded to Hochiminh City in 2003.
As of 2000, Mobifone and VinaPhone covered all cities and provinces of the country,
respectively, whereas Call-link mainly covered Hochiminh City areas. Therefore, competition
existed primarily between Mobifone and VinaPhone. Although competition did result in a
reduction of connection fees and more new services, there was no real competition as both
companies belong to VNPT. At the end of 2003, Mobifone and Vinaphone still dominated the
market for mobile services with the number of subscribers of around 1.3mn and 1.7mn
respectively. Even with the new entrants starting to provide mobile services in July 2003 and late
2004, by end 2004, Mobifone and Vinaphone still dominated the market for mobile services with
the number of subscribers of around 2.2mn and 2.5mn respectively, while the subscribers for SFone and Viettel were only about 150,000 and 100,000 respectively.
c) Internet Services
Internet services enterprises are classified into Internet exchange providers (IXP),
Internet services providers (ISP) and online service providers (OSP). Presently, there are six
IXPs, 15 ISPs and 12 OSPs, which are providing Internet services in Vietnam. Among the
Internet services providers, VNPT is a major supplier with a market share of 48.57 percent,
followed by FPT with a market share of 28.56 percent in 2004. As of January 2004, the total
international Internet connection capacity is 1,038 Mbps, of which VNPT accounts for 905
Mbps, FPT 89 Mbps, Viettel 38 Mbps, SPT 4 Mbps and ETC 2 Mbps.
Internet Subscribers by ISPs, 2004
Number of Subscribers Growth rate (%) Market Share (%)
FPT
574,940
10.94
28.56
HANOI TELECOM
3,708
2.80
0.18
NETNAM
120,173
5.59
5.97
OCI
25,970
2.02
1.29
SPT
115,836
6.24
5.75
51
VIETEL
194,612
8.43
9.66
VNPT
977,687
3.32
48.57
Total
2,012,926
6.19
100
Source: Ministry of Post and Telematics
One Internet service that strongly competes with the fixed lines and mobile services
provided in terms of prices is Internet telephony. Internet telephony has recently been opened to
telecom enterprises. The OSPs are allowed to offer Internet telephony in the forms of PC-to-PC
for both domestic and oversee calls and PC-to-Phone for calls from abroad. The other Internet
telephony, say Phone-to-Phone or Voice Over Internet Protocol (VoIP) are only permitted to
some limited number of telecom enterprises. Six telecom enterprises have been permitted to
provide IP telephone: Viettel in June 2001, SPT in June 2001, VNPT in July 2001, Hanoi
Telecom in April 2003, and VP Telecom and Vishipel in recent years. The international traffic
volumes of VoIP have increased steadily since it was introduced in Vietnam. As of November
2004, the international call market share of VNPT is 36.2%, SPT 22.31%, Viettel 20.1%, VP
Telecom 12.93%, Vishipel 12.93% and Hanoi Telecom 4.53%. The traffics of calls from oversee
is ten times higher than calls to abroad. The international calls through VoIP accounts for 56.55
percent of total international calls while the conventional IDD accounts for 43.45 percent.
2.2.2.3. Transportation
a) Road transportation
Road transport is the most advanced sector in terms of privatisation. It handles the largest
volume, about 60 percent of domestic passenger and cargo transports. At present there are about
1,050 enterprises registered in road transport business, of which 16 state-owned enterprises, 233
limited liability companies, 350 private companies, 450 joint stock companies, and very few
foreign invested companies. Most of road transport companies are of small and medium scale,
with about 50 vehicles each company on average. State-owned enterprises in road transport face
a lot of competitive pressure due to their declining number of vehicles, poor performance; and
tend to be equitised by 2005. Beside enterprises of all types of ownership, there are tens of
thousand of individual household businesses that also operate in passenger and cargo transport
service.
Road transport mainly serves the domestic market. International road transport accounts
for a very small share. Currently, Vietnam has singed the Road Transport Agreement with Laos
PDR, China, and Cambodia. However, the passenger and cargo transport between Vietnam and
these countries is insignificant, the traffic between Vietnam and these countries is limited.
b) Inland waterway transport
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Inland waterway transport in Vietnam is very developed, and ranked the second in
domestic passenger and cargo transport, accounting for 25-30% of total domestic transported
volume, especially in the Mekong river delta. Currently, the inland waterway transport subsector has 2 state corporations affiliated to the Ministry of Transport, one state-owned enterprise
affiliated to the Vietnam Inland Waterway Authority, and some enterprises managed by other
ministries, operating in supporting the power generation, cement, and paper industries. In
addition, there are about 230 cooperatives and hundreds of inland waterway transport enterprises
in the country; some are very profitable. Private household businesses also develop strongly,
especially in the Mekong river delta and the Red river delta
c) Railway Transportation
Railway transportation is still under the state monopoly.
d) Maritime Transportation
Currently the maritime transport sub-sector of Vietnam includes the Marine Transport
Corporation, which is a state corporation, with 38 member companies that provide maritime
transport and related services. Besides, there are hundreds of other enterprises, including stateowned enterprises, foreign invested enterprises, and private enterprises (limited liability
companies, joint stock companies, and private companies) that also provide maritime transport
and supporting services, creating a competitive environment among different service providers.
Vietnam's fleets have small scale. By the end of 2002, Vietnam has 819 vessels with total
capacity of 2,123,414 dead weight tons (DWT), or ranked the 60th out of 150 countries around
the world, and 4th in ASEAN (next to Singapore, Malaysia, and Thailand). The average vessel
size is 2,650 DWT. Currently there are more than 400 ships with the capacity below 1,000 DWT
that operate in domestic routes. The fleet structure is less than efficient, lack of specialised
container ship, bulk cargo ship, and large oil tanker. Multi-function ships and bulk cargo ships
account for 87 percent in number and 63 percent in tonnage; and container ships account for only
2.2 percent in number and 9 percent in tonnage.
e) Air transport
In Vietnam currently there are 3 domestic firms providing air transport services: Vietnam
Airline Corporation, Pacific Airline joint stock company, and Vietnam Service Flight
Corporation. Passenger transport and postal package transport are mainly handled by Vietnam
Airline and Pacific Airline. During 1996-2002, passenger transport of Vietnamese airlines
achieved the average growth of 9.5 per year in passenger number. Passenger, cargo, and postal
package transport during 1996-2002 by Vietnamese air transport companies recorded the average
growth rate of 12.3 per year. In 2002, the market share in terms of revenue from this service in
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the whole sector was 68.5%, of which Vietnam Airline accounted for 89.95% and Pacific Airline
accounted for 10.05%.
2.2.2.4. Financial services
a) Banking services
Vietnam’s banking system includes four stated-owned commercial banks, 46 joint-stock
banks, five joint-venture banks, and 26 branches of foreign banks. In addition, Vietnam has a
system of credit fund with one Central People’s Credit Fund and 906 branches around the
country. Besides, there are four leasing companies and six securities companies. The state sector,
with four main state-owned commercial banks - the Bank for Investment and Development
(BIDV), the Bank for Foreign Trade of Vietnam (Vietcombank), the Industrial and Commercial
Bank of Vietnam (Vietincombank) and the Bank for Agriculture and Rural Development
(VBARD) – continue to dominate lending. Their total share usually levels at 70-80 percent of all
lending activities till 2004, while the local joint stock banks account for around only 15 percent
of total lending. Foreign bank operations are more restricted, particularly in terms of the extent to
which they can mobilise the Vietnam dong. This has contributed to their low market share,
which was less than 10 percent of the lending market in 2004.
b) Insurance and other financial services
Over past ten years, the insurance premium in Vietnam has experienced high growth rate
of 30 percent/year. The insurance premium in 2004 reached US$900mn, accounting for 1,9
percent of GDP and making Vietnam one of the countries with the highest growth rate of
insurance demand in the regional and in the world.
As of 2004, there have been 26 enterprises being allowed to operate in non-life insurance,
life insurance, reinsurance, and brokerage. The insurance enterprises have different types of
ownership: five SOEs, seven shareholding companies, seven JVs, and seven wholly foreign
owned enterprises. Besides, there are about 30 representative offices of foreign insurance
companies operating in Vietnam. As compared with 2003, the market share of SOEs in 2004
declined from 55.3 percent to 52.9 percent, share of shareholding companies increased from 5.3
percent to 7.4 percent and share of foreign invested insurance companies raised moderately from
39.4 percent to 39.7 percent.
In the non-life insurance segment, there are 14 enterprises. The concentration of the
market reduced but still at the high level; particularly, the HHI index for 2003 is 3320 and 2004
is 2212. In 2003, the three biggest insurance enterprises account for 85 percent of total insurance
premium; they are Bao Viet (52%), Bao Minh (20.3%) and PJICO (12.4%). In 2004, the total
market share of three largest insurance companies was 79.4 percent; particularly, Bao Viet with
42.42 percent, Bao Minh with 22.89 percent and PVI with 14.1 percent of the market. The SOEs
54
still account for dominant market share of 79.23 percent, while the shareholding companies
accounts for 14.47 percent and foreign invested enterprises at 6.3 percent. Five enterprises
operating in the life insurance market consists of one SOEs, one limited liability company and
three 100% foreign capital invested enterprises.
The life insurance segment also has a relatively high concentration level. The HHI in
2003 was 3397 and in 2004 was 3382. As of the end 2004, the market shares of five lifeinsurance enterprises are as follows: Bao Viet with 40.07%, Prudential with 40.02%, Manulife
with 11.68%, AIA with 5.56% and Bao Minh CMG with 2.67% of the market.
Reinsurance services are provided by only one national enterprise, that is Vietnam
Reinsurance. In 2003, the reinsurance premium retained at this enterprise was 15.6 percent,
transferred to other domestic enterprises at 15.8 percent and to foreign enterprises at 68.6
percent. Since October 2004, Vietnam Reinsurance started operation with 13 new shareholders
being non-life insurance enterprises in Vietnam.
The lines of non-life insurance services are very diversified. Among 15 insurance lines, 5
largest ones account for 75 percent of total insurance premium, of which motor vehicle insurance
accounts for 29.6 percent, personal accident and health insurance 16.8 percent, property and
casualty insurance 12.5 percent, cargo insurance 8.2 percent and hull and P&I insurance 8.1
percent.
Monopolistic situation remains mainly in some industrial insurance markets such as oil
and gas, gasoline, and telecommunications, while competition is more popular in other lines of
insurances. The non-life insurance enterprises strongly compete with each other, mainly through
reducing insurance premium and increasing commission. The problem is that the extent of these
changes is so high that they become unfair competition practices. Many enterprises reduced their
insurance premium below the reinsurance fees for many insurance lines. For example, the
insurance premium for steels declined from 0.14 percent of the value of insured goods in 2002 to
0.08 percent or even 0.06 percent in 2003. The insurance premium for fertilisers also is reduced
from 0.6 percent to 0.3-0.35 percent. In addition to competition through insurance premium and
commission, the powers of local authorities are sometimes used for competing unfairly.
2.2.3. Restructuring trends
After a stage of economic stagnation during 1998-2000 due to the effects of the Asian
financial crisis and weak internal management policies, Vietnam is again heading off towards
more robust economic growth. Markets are developing fast, partly under the effect of new
economic policies, which focus more on the role of the private sector as well as the domestic
market, partly due to the competitive pressures from imports and possible foreign entrants, and
55
partly due to the demand push created by a new consumerism shaped by better living conditions
and higher levels of disposable income. The number of private enterprises, both domestic and
foreign invested, in particular SMEs, has never risen this high, and will continue to increase at
the wake of the long-awaited Uniform Enterprise Law and Uniform Investment Law by end 2005
and early 2006. Costs reduction and efficiency increase are the centre of any firm’s restructuring
agenda.
The biggest restructuring trends remain with big state-owned general corporations (GCs),
which have been given the leading role in the community of SOEs. Currently, in Vietnam, there
are 97 GCs which have 1,476 subsidiaries, having a total legal capital of VND129000bn
(US$8.2bn) and a working capital of VND252000bn (US$16bn), accounting for 68.2 percent of
state capital and 62.4 percent of total working capital in the state sector. So far, 06 GCs,
including Vinaplast, Leaprodexim, Viglaceglass, Machinoimport, and VietGoldgem have been
liquidated; the Vietnam National Alcohol-Beer-Soft Drink Corporation has been restructured;
and the Vietnam National Gem and Gold Corporation has been merged into the Vietnam
National Minerals Corporation. Other major GCs that are to be equitised include the Vietnam
Shipbuilding Industry Corporation, Vietnam Constructional Import and Export Corporation,
Vietnam Cement Corporation, Vietnam Cosmetic Materials Corporation, Vietnam Foreign Trade
Bank, Cuu Long River Delta Housing Development Bank, Ho Chi Minh Insurance Company,
and Vietnam Reinsurance Company.
In parallel, there is also a plan establish a series of powerful economic groups with
international competitiveness. The concept is for major GCs like Electricity of Vietnam (EVN),
Vietnam Post and Telecommunications (VNPT), Vietnam Airlines, Vietnam Shipping Lines
(Vinalines), Petrol Vietnam and so forth to become ‘economic groups’ on a trial basis. After
2004, other corporations will undergo a similar ‘up-grading’. The economic groups would
develop based on the model of ‘holding companies’, which means one mother company and
several subsidiaries. Mother companies would contribute capital to their subsidiaries. The
transferral is expected to make the corporations stronger and more competitive because the
relationship between mother companies and their subsidiaries would become that of business
partners rather than the current administrative relationship. This is part of the GOV’s continued
commitment to gradually remove the current monopoly mechanism in a wide range of sectors
such as electricity and telecommunications by permitting enterprises of various kinds to become
involved.
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2.3. Barriers to competition
There remains a great deal of potential barriers to competition in Vietnam: (i)
Institutional barriers to competition, such as government regulations in product and factor
markets, which deter firm entry, exit and growth; including barriers to entry and exit; barriers to
international trade; barriers to factor markets (barriers to investment, employment, and land, etc);
barriers to research and development (barriers to entrepreneurship and innovation and barriers to
the efficient use of this knowledge); barriers to price adjustment, etc; (ii) Private barriers to
competition, which include various types of anticompetitive behaviours like abuse of dominance,
monopolisation, market allocation and price-fixing arrangements, concerted refusal to deal, etc.
Private barriers to competition will be dealt with separately in subsequent parts of this report,
while this section will mainly bring out and analyse some most common institutional barriers to
competition prevalent in Vietnam at present.
As mentioned earlier, the legacy of the centrally planned economic system is still quite
strong in Vietnam, hence the prevalence of many government regulations, or decisions which
might have an adverse effect on competition in the market. Take a very simple example. Since
2000 during the implementation of the Enterprise Law, about 200 types of business licenses have
been abolished. Unfortunately, during this same period, the same amount of business licenses28
have been created. According to the statistical data collected by the Vietnam Chamber of
Commerce and Industry (VCCI), by 31 December 2004, there were 298 effective business
licenses; of which, 20 business licenses were issued by the VNPT; 17 by the Ministry of Police;
5 by the Ministry of Industry; 3 by the Tourism Authority; 23 by the Ministry of Transportation;
1 by the Ministry of Training and Education; 15 by the Ministry of Science and Technology; 5
by the Ministry of Labour, Invalid, and Social Affairs; 34 by the State Bank; 37 by the Ministry
of Agriculture and Rural Development; 2 by the Ministry of Defence; 31 by the Ministry of
Finance; 15 by the Ministry of Natural Resources and Environment; 19 by the Ministry of
Aquatics; 10 by the Ministry of Trade; 11 by the Ministry of Justice; 32 by the Ministry of
Culture and Information29; 3 by the Ministry of Construction; and 15 by the Ministry of Health.
Instead of moving towards simplification, the licensing regime in Vietnam seems to get more
and more complicated and cumbersome by days. The total time needed to start a business in
28
Business licenses in this context are understood as those papers that enterprises should get to satisfy the business
conditions issued by government agencies in term of licenses, certificates, approvals, and decisions, and so on.
29
Many of the licenses issued by the Ministry of Culture and Information (MOCI) are related to the cultural,
political and security aspects of business activities; which sometimes have unexpected effects such as hindering
business development, hampering competition. For instance, Decision 27/2002/QD-BVHTT dated 10 October 2002
of the MOCI requires that the creation of websites and uploading information onto the Internet of all organisations
and enterprises must be licensed by the MOCI, which shall cause many troubles to SMEs in promoting their
business information via the Internet and considerably impede the development of e-commerce in Vietnam.
57
Vietnam is 63 days, also according to the VCCI, while the same process takes only two days in
Australia and 46 in China. The government project to promulgate to the Unified Enterprise Law
hopefully will help to resolve this problem.
The deep-rooted command and control system also results in quite a few interventionist
regulations imposing ceiling or floor levels of price/expense that businesses can apply/spend,
which should have been left to the market to decide, for instance the inappropriate provisions on
controlling Internet connection fees, or the ceiling limitations of promotion expenses. Under
Decision 480/2002/QD-TCBD dated 13 June 2002 issued by the General Department of Posts
and Telecommunication (GDPT, now the Ministry of Posts and Telecommunication – MOPT),
the State controls Internet connection fee via public telephone by provision of fee frame. Internet
connection service providers are obliged to apply such unified Internet fee frame and not
permitted to offer lower or higher fee than minimum and maximum level respectively. This
ultimately means that the Internet access service providers cannot determine the fee themselves
upon the supply-demand balance in the market and to increase their competitiveness in the
market. Price competition is thereby eliminated and Internet users have to bear higher Internet
service fees and low connecting speed in comparison to other countries in the same region.
Box 2.3.1. – State control over Internet connection fee
In late 2001, the GDPT, at its ever first time, sought opinions of Internet Service Providers (ISPs)
on the way to manage Internet connection fee. At that time, Internet connection fee was controlled at the
both ceiling and floor levels. According to its Dispatch 1549/TCBD-KTKH dated 31 December 2001 sent
to various ISPs, the GDPT proposed to opt for either (i) retaining control of Internet connection fee but
only at floor level; (ii) or Internet connection fee shall be floated up to ISPs. All the ISPs in the market at
the time widely welcomed such goodwill of the GDPT and made two main opinions in response of this
poll.
Mr. Truong Dinh Anh, Director of FPT Internet Center, preferred the floating Internet connection
fee, said: “the thing most important to customers is their pocket, meanwhile their incomes are very low.
We can see that in the first three years, the State has adjusted and reduced Internet connection fee several
times but the fee level still remains rather high and it therefore does not encourage customers to use
Internet services. Furthermore, the development of each ISP is much different, the way to calculate
expenses, price and service quality of each ISP are also different. We should not put all ISPs into one bag.
If we do so, consumers shall not be satisfied as there are many different kinds of consumers”. In
consensus with FPT, VDC (Vietnam Data-Communication Company) expressed its wish to be able to
self-manage its own Internet connection fee.
On the other hand, Netnam, Saigonnet and Vietel – small ISP with modest market shares in
comparison with VDC and FPT all expressed their high concerns if the GDPT allows ISPs to decide
Internet connection fees on their own. They all strongly requested the GDPT to keep up controlling the fee
at floor level to protect them from aggressive price competition of giant ISPs.
After six month of intermittent discussion with ISPs, completely contrary to its suggestions and
ISPs’ hopes, with the release of Decision 480/2002/QD-TCBD dated 13 June 2002, the GDPT decided to
maintain the same regime of State control over Internet connection fee. There is only one change that the
GDPT decreased both ceiling and floor levels.
Source: www.vnpost.dgpt.gov.vn
58
The cost of doing business in Vietnam is listed among the highest in the region, which
not only hinder competition but also market growth and business development in general. High
transportation cost, an antiquated tax system, and steep legal fees, and troublesome arbitrary
amounts of customs clearance fees levied by officials tend to scare new business and
significantly reduce the scope for new market participation.
The Vietnam Business Forum’s Tax Working Group, at its Mid-term Consultative Group
Meeting in June 2005, reported on the substantial burden imposed on taxpayers by various
administrative problems with the tax system, for instance, additional documentary requirements,
late issuance of circulars with retrospective effect which complicated completion of tax filings,
the unduly tight filing deadlines and the lack of distinction between fraudulent behaviour and
genuine errors (for example, due to unclear regulations) when imposing penalties. In some
cases, these problems have become worse in recent times – in particular, the processing of
double tax treaty claims and additional requirements for notarisation and legalization of
documents are a major concern. The group also expressed frustration at the slow progress in
resolving long-standing issues including the failure to apply zero rating VAT treatment to
exported services, the 10% cap on advertising/marketing expenses imposed by the State
regulations and the inability to deduct legitimate business expenses, all of which reduced the
competitiveness of companies operating in Vietnam.30
Box 2.3.2 – State-imposed cap on advertising/marketing expenses restrict competition
According to State regulations in Vietnam, business’s expenses for advertisement, marketing, sale
promotion, commissions, etc must not exceed 10% of total allowable expenses. Due to this limitation, all
business entities must limit payment for advertisement and promotion. This subsequently entails
limitation in use of advertisement and promotion services, which leads to a situation where domestic
enterprises will face great difficulties in building up their images in the limitation of expenses, as
compared to large foreign-invested enterprises (FIEs).
Although foreign companies also operate under the same restriction, their total expenses are much
higher than their Vietnamese counterparts; therefore, their advertising budgets are higher. Furthermore,
foreign companies’ marketing campaigns are usually backed by their international branding expertise.
Such competitive edges have been used effectively by many foreign TNCs in gaining market dominance
in Vietnam, such as the case of Coca Cola and Pepsi Cola as against Saigon Tribeco (a Vietnam joint
stock company in Ho Chi Minh City producing soft drinks), where the later was cornered to losing
customers for most of their soft drink products (which used to be quite popular before the year 2000) and
selling only soybean milk due to the aggressive advertisement and promotion strategies of the former.
After lots of objections and recommendations from the business community, this regulation has been
removed by Decree No. 199/2005 of the Ministry of Finance (MOF). The business community has expressed their
strong support for this move of the Government.
The Vietnam Data-Communications Company (VDC), for example, opined that the ceiling
expense on advertising and reception of 10% of the aggregate eligible expenditures has tied enterprises to
an unreasonable restriction though these expenditures are legitimate and profitable. The restriction was
necessary in the old economic mechanism as it prevented enterprises from over-spending on
advertisement for the purpose of unfair competition and market-cornering. Under the new market-
30
See http://www.vietnambusinessforum.org/whatsnew.asp for more details
59
oriented system, however, this restriction has impeded business operations of enterprises.
Representative of the Ho Chi Minh City Food Company, said: “The restriction removal greatly
facilitates our company’s business undertaking because we have a great need for advertisement. The limit
of 10 percent has, to a considerable extent, impeded the company's business. The company has missed
several big contracts valued at tens of billion VND because it was not allowed to spend the over-ceiling
expense on broker service even though that expense might have rendered high profits.”
Sources: VietnamNet (www.vnn.vn) and Vietnam Business Forum (http://vibforum.vcci.com.vn)
The incomprehensive and at the same time overlapping nature of the legal framework
regulating economic activities also act as a significant barriers to business expansion and
competition. The complicated structure of the administrative system also adds up to the problem.
In some cases, subordinate documents arbitrarily issued by provincial local authorities to protect
their localities have set down more restrictions and/or requirements to business activities of
enterprises. Representative of the Hanoi branch of Hoang Long Transportation Company, for
instance, complained that the company was in a dilemma when the Hanoi General Department of
Transportation and Public Infrastructure stopped all their buses from getting and dropping
passengers at the city’s high-quality bus stations. Interestingly, when the company sought
approval for purchasing ten high-quality 35-seat (the investment amounts to VND10bn, which
now would be difficult to retrieve), none of the relevant authority gave any slight objection, or
any indication of such policy changes. In another instance, on 25 September 2002, the Ho Chi
Minh City People’s Committee issued Decision 108/2002/QD-UB providing the Regulation on
advertisement within Ho Chi Minh City, which requires that the designs of the fixed
advertisement boards with total area of over 12m2 should be appraised by the City Department of
Construction. Enterprises were also subject to several other restrictions due to this Decision. For
example, light box and advertisements installed at shops, business places as well as banners
hanging at trade fairs and exhibitions, etc must have its size fallen within 1.2X8m or smaller; all
means and forms of advertisements must be placed at least 100 meters far away from the centre
of roads and at least 200 meters far away from the centre of round corners within the City.
The discriminatory treatment between State-own enterprises and private enterprises is
another significant aspect of the Vietnam economy, where competition is hampered by State
regulations or arbitrary administrative decisions. According to the Law on Mineral Resources of
Vietnam, only SOEs are permitted institutional access to the national mines. Enterprises from the
non-State can only gain access to these mines through contract with SOEs; which is totally in
contradiction with the principle of non-discriminatory/fair treatment in competition. What’s
more, private cement producers in Vietnam have to get the approval of the General Cement
Corporation (their very own competitors) on their allocated quota to import clinkers for
60
producing their won finished products – an authority which has been bestowed by the Ministry
of Industry on its protégé SOE.
A most obvious and absurd example recently is a Dispatch by the Ministry of
Construction (MOC) (Dispatch 1124/BXD-KHTK dated 1 July 2003, signed by Mr. Tong Van
Nga, Vice Minister) to all enterprises belonging to the Ministry of Industry and the Ministry of
Transportation, which asked all these enterprises, and other enterprises working in the same
industries to give priority to purchasing and utilising products produced/supplied by enterprises
belonging to the Ministry of Construction. The mentioned Dispatch also prohibited all private
construction and investment consultancy firms to recommend the use of any type of materials or
equipments supplied by other private producers in common construction projects. Enclosed with
the Dispatch was a list of main products produced or going to be marketed by the MOC
enterprises, which were recommended for use. Such practice not only discriminates between
State and non-State players, but also discriminates between domestic and foreign products,
which is essentially contrary to the principles of the World Trade Organisation, which Vietnam
is trying to become a member. Many other examples can also be quoted in this context, such as
the “Regulation for doing business in the steel industry” issued by the Ministry of Trade, which
allows enterprises to undertake steel distribution business only if they can set up their own
distributional network through firms, branches, shops, distribution agents and retail agents31; the
“Regulation on parallel imports of pharmaceutical products” by the Ministry of Health, which
allows only three (03) companies (not clearly indicated and defined) to carry out parallel imports
as compared to nearly 40 companies entitled to direct imports32; or the new method of quota
allocation over apparel exports to the US in 2005 by the Ministry of Trade, which prioritises
quota allocation for a number of ‘large’ enterprises, which have intensive trading relations with
large US importers and distributors, and which as well as possess a strong capability of exporting
into the US via these contacts33.
Such institutional barriers to competition need to be eliminated soon; otherwise the fruits
of the liberalisation and reform process will be negated and the competitive environment in
Vietnam will be further distorted. If the government wants business entities not to commit any
anticompetitive practice, they should start by being not anticompetitive themselves.
31
See VietnamNet on 10 September 2004 (www.vnn.vn)
See VietnamNet on 09 March 2004 (www.vnn.vn)
33
For more details, see http://www.cuts-international.org/E-NewsletterVol1.htm#new
32
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Chapter 3
Sectoral policies
Vietnam’s multi-facet problems in its market reform process, like many other developing
and transition economies, has been most interestingly reflected in its efforts to liberalise basic
infrastructure industries such as transportation (air, rail, truck, shipping), telecommunications,
financial services, and energy, which have long been protected from competition as state-owned
or controlled monopolies. The response of the GOV to the effects of regional and global
integration and the need for the Vietnamese economy to increase its competitiveness and to
attract FDI has been to remove state monopolies and to open up these protected sectors to
competitive forces. It is well understood that requiring firms to compete with each other will
foster innovation, reduces production costs, increases economic efficiency and, consequently,
enhances the competitiveness of the economy and improves consumer welfare; since greater
competition also allows consumers to choose from a wider range of products and services at
lower prices. However, when it comes to putting the idea into real practices, many a time the
government has faced with not just one but several predicaments.
There is always a possibility, or rather a threat, that opening such sectors without caution
may simply mean transforming a public monopoly into a private monopoly, or even worse, a
foreign-controlled monopoly. Private participation, or competition, may also mean opening the
gate for private anticompetitive conduct to flood in those sectors where price control and
administrative measures used to be a common practice. On top of that, there is also the problem
of institutional restraints. Even in the most advanced industrialised countries, institutional
restraints continue to have a far greater aggregate distorting impact on competition than all
private restraints combined. As already discussed in preceding chapters, in Vietnam, distortions
of competition, or barriers to competition, brought about by laws, regulations, licensing regimes,
administrative measures, other institutional restraints and “red tape” typically exist in markets
accounting for a substantial proportion of overall economic activities in the economy, especially
utilities and services industries.
This chapter means to bring about a review of the extent to which competition currently
is being introduced into those key sectors like electricity, telecommunications, financial services,
pharmaceutical, etc, as well as a brief discussion of how competition is being distorted, or
promoted by laws, regulations, supply management schemes, licensing regimes, procurement
policies, investment restrictions, product standards and other institutional measures or practices,
in short, the regulatory regimes in those sectors. The idea is to found a basis on which a more
harmonised approach could be reconciled so that both competition and regulation objectives can
62
be achieved and optimised in the sectors toward the final goal of economic efficiency and
consumer welfare.
3.1. Electricity
Early Reforms of Vietnam’s Power Sector
The initial reform of Vietnam’s power sector has been started in late 1994 and focused,
first, on reorganisation, and second, on consolidation. Under the old centrally planned system,
Vietnam’s power sector was run by three regional state-owned Power Companies (PC1, PC2,
and PC3), which are in fact extensions of the former Ministry of Energy, responding mainly to
the administrative needs rather than business requirements. In an attempt to reduce the direct
intervention of line ministry in the daily operations of power companies, build up a corporate
culture within the sector to replace the old bureaucratic atmosphere, and develop large and
internationally competitiveness business unit, the Electricity of Vietnam (EVN) has been
established in 1995 through merger of all three regional monopoly power companies. It hitherto
has been operating in the form of a “conglomerate” or national monopoly in generation,
transmission, and distribution of electricity. In the re-organised power sector, EVN is businessoriented with profit being the primary motivation for its operations and regulated by the newly
established Ministry of Industry (MOI). The MOI is responsible for approving all pricing
policies and capital investment decisions, as well as selecting the board of directors of EVN and
its CEO.
The consolidation of the power sector aimed at improving the financial performance of
EVN and ultimately financing its capital expansions from its own funds rather than from state
budget allocations. For these overall goals, several measures have been undertaken. The noncore activities, such as hotel, construction and design, were eliminated or, at least, separated
from the core activities (generation, transmission, and distribution). In turn, the financial position
of core activities was improved by making each of EVN’s business units as profit centres, which
will be responsible for generating enough revenue to cover their capital and operational costs.
In addition to reorganisation and consolidation, private participation was also
encouraged, though with a cautious approach. The Government Decree No 87/CP (further
amended by the Government Decree No 62/1998/ND-CP) on BOT (Build-Operate-Transfer)
Contracts Involving Foreign Investment and the Foreign Direct Investment Law in 1993 (further
amended in 1996) are the first regulatory documents allowing the private sector to participate in
the power sector in the form of independent power producers (IPPs). The IPPs are allowed to
generate and sell directly to customers in designated industrial zones at prices negotiated
63
between the IPPs and the customer. These prices need not be approved by EVN, nor need they
conform to EVN’s guidelines. The IPPs can also sell their excess electricity to the national grid.
Gradual approach to establish Vietnam’s competitive electricity market
The Resolution adopted in October 2003 by the 9th CPV Congress and the Development
Strategy for Vietnam’s Electricity Sector during the period 2004-2010 and toward 2020 state the
general principles for the development of a competitive electricity market:
“There will be gradual formation of a domestic competitive power market,
diversifying the forms of investment and business in electricity, encouraging all sectors
of the economy to participate, but without changing State monopoly into enterprise
monopoly. The State shall only retain its monopoly at the stages of transmission,
construction and operation of large hydro-electricity plants; and the State shall take the
initiative in linking Vietnam's electricity network to networks of other regional countries
and in the purchase and sale of electricity as between regional countries.
Electricity services must be quality services at competitive prices. Setting
electricity prices must achieve the objective of encouraging investment to develop the
electricity industry, and make prices more competitive with those in other countries in the
region, especially the price of electricity servicing manufacturing industries, and
removing the element of social policy from electricity prices but with an appropriate
policy for use of electricity in rural and mountainous areas”
Among the principles, most profound was the adoption of a gradual approach, which has been
legislated in the Electricity Law 2004 of Vietnam.
Box 3.1.1 - Vietnam’s Electricity Law 2004 – Toward a modern regulatory regime?
Vietnam’s Electricity Law was passed in November 2004, expected to come into effect on 1 July
2005. The Law governs all entities involved in electricity-related activities, which include planning and
investment in electricity development, generation, transmission, distribution, wholesale and retail
electricity sales; and stipulate the monitoring and regulation of the Vietnam’s electricity market. It aims to
stimulate growth and diversify forms of investment in the electricity sector, encourage economical use of
electricity, preserve the country’s electricity infrastructure and develop a competitive electricity market.
Toward becoming a fully competitive market, the Vietnamese electricity market will operate in
accordance with the following principles: (a) ensuring access to information, equality, healthy
competition and non-discrimination between participants in the market; (b) respecting the right of
participants in the sale and purchase of electricity in the market to choose with whom to conduct
transactions and what form those transactions should take, provided these choices are in line with the
relevant regulations for each phase of market development; and (c) regulation by the state to ensure
development of a sustainable electricity system and a safe, stable and efficient electricity supply.
The State will maintain its monopoly over electricity transmission, regulation of the national
electricity system, and the construction and operation of large power plants, which are significant for
socio-economic or national defence and security reasons.
In all other segments of the industry, electricity markets will be established and developed in
stages. The rights and obligations of the electricity entities, in particular the choice of contractual partner
and trading method, will be in line with the stages of market development as follows:
(1) Competitive electricity generation market – at this stage, electricity generators will have the
right to sell electricity under a definite-term contract or to offer to sell electricity on a spot
basis. Electricity wholesalers and major end users (i.e. entities that consume a relatively high
quantity of electricity) will have the right to buy electricity from electricity generators under a
definite-term contract or by spot trading.
(2) Competitive electricity wholesale market – electricity wholesalers will be able to sell
electricity to retailers at any price, provided it is within the tariff range set for wholesale
64
transactions.
(3) Competitive electricity retail market – electricity retailers will have the right to determine the
price at which to sell electricity to end users, provided the price is within the approved tariffs.
End users will have the right to choose from which electricity retailer to purchase electricity.
Electricity retail tariffs will be prepared by the MOI with the assistance of the Electricity
Regulator and approved by the Prime Minister. Electricity generation and wholesale tariffs, fees for
electricity transmission and distribution, and auxiliary services will be proposed by the entities involved
in the relevant electricity activities and will be evaluated by the Electricity Regulator and approved by the
Minister of Industry. One of the underlying principle in electricity pricing, as set by the Law is “to ensure
the right of entities purchasing and selling electricity in the market to make their own decisions on the
price of purchase and sale of electricity within the electricity tariff stipulated in the state regulations.”
Under the Law, the MOI will be responsible for administering electricity activities and use, and
the People’s Committees will manage electricity activities and use within their jurisdiction. The MOI will
issue licences for electricity wholesalers and retailers and for entities involved in electricity generation,
transmission and distribution activities connected to the national electricity network. The provincial
People’s Committees will issue licences for organisations and entities operating electricity activities on a
smaller scale within the provinces, in accordance with guidance from the MOI.
The Law also provides for the establishment of a new authority in the electricity sector, the
Electricity Regulator. This body will assist the MOI in: (i) preparing rules and guidance on the operation
of competitive electricity markets; (ii) suggesting measures to adjust and maintain the balance between
electricity supply and demand; (iii) issuing, amending and revoking electricity licences; (iv) issuing
guidance on the conditions and procedures for electricity outages and on the reduction of electricity
consumption; (v) issuing guidance on the conditions and procedures for interconnection to the national
electricity system; (vi) preparing electricity retail tariffs; (vii) providing for the tariffs for electricity
generation and wholesale, and the fees for transmission and distribution; (viii) observing the
implementation of plans and projects of investment in the development of electricity sources, electricity
transmission and distribution grids for compliance with the master plans; (ix) determining the ratio in
capacity and electricity power between electricity trading through definite contracts and electricity traded
on a spot basis in each electricity market; (x) observing the implementation of the approved electricity
tariff; and (xi) settling complaints and disputes in the electricity market.
The Prime Minister will provide for the organisation, powers and tasks of the Electricity
Regulator in further regulations.
The focus of the Law is to build and develop a competitive electricity market, a task said
by many to be likely time-consuming and resource-intensive, looking at the current situation of
Vietnam’s electricity sector. It is expected that it could take 5 years to achieve a competitive
electricity generation market, 10-15 years for a competitive wholesale market, and another 10-15
years for the third phase – a competitive retail market. In total, the three-phrase process requires
about 30 years to be completed.
The first step toward creating a competitive electricity market in Vietnam has been
undertaken in July 2004 when EVN launched an ‘internal electricity market’ in which its
affiliated electricity generators must compete with each other to sell their products to the mother
company. This internal market is planned to open to the unaffiliated generators in 2005, and will
be developed to its highest level with the participation of the Electricity Transaction Centre and
the control of the Electricity Regulator.
65
The unaffiliated enterprises are currently allowed to sell their products directly to its
consumers within certain geographic and administrative areas. These generators are entitled to
lease the EVN’s transmission and distribution grids and, in turn, pay the latter the costs of
management and investments in transmission and distribution. In addition to direct selling to
consumers, the unaffiliated enterprises can also sell to EVN. Presently, EVN buys electricity
from unaffiliated generators through long-term contracts, whose duration are from 1 to 25 years.
Although EVN indicated its call for the participation of unaffiliated generators since the
corporation itself cannot meet the huge demand for electricity, the actual participation is limited.
The unaffiliated are encouraged to sell electricity directly to consumers but for the whole area
rather than some selected consumers; as a result, they are required to sell electricity to the
“policy” consumers who pay very low prices. In the case of selling to a single buyer, EVN, these
enterprises complained that they faced a lot of difficulties in price negotiation with EVN,
especially that the prices paid by EVN is low.
The current organisation of EVN and its further reorganisation
In order to cope with increasing competition in the power sector, EVN has made
important measures to restructure its organisation. In 2002, EVN defined the internal accounting
prices to its power generators, who then became independent accounting units. These generators
are obliged to offer competitive prices from July 2004, when the internal electricity competitive
market was created. The internal market is considered as the first attempt to expose EVN’s
generators to the competitive pressure of the free market. It made it essential for the generators to
rationalise their production in order to reduce the costs and, therefore, able to offer the
competitive prices.
EVN also has a restructuring plan for the 2004-2010 period. According to this plan, EVN
would transform its power plants into three types: ones with 100 state capital and organised as
independent accounting SOEs, ones transformed into shareholding companies with dominant
shares hold by EVN, and ones transformed into single-owner limited liability companies. The
100 state capital power plants are mainly current and future large hydro and nuclear power
plants; 8 power plants will be transformed into shareholding companies in 2004-2005, and two
will become single-owner limited liability companies. As regard transmission, it is planned that
four existing transmission companies will be merged into one single-owner limited liability
company in 2005, the National Transmission Company, with EVN as a single owner. This new
transmission company and National Load Dispatch Centre will manage the buying and selling of
electricity. Among the six distribution companies, three of them are suggested to be equitised in
2005-2010 and three remaining companies transformed into single-owner limited liability
companies. It is also planed that during the period 2004-2010, EVN is still organised in the
66
existing form of state general cooperation and then will be transformed into the holding company
in which the linkage between EVN and its affiliated enterprises changed from the capital
assignment to portfolio investment relations and all affiliated enterprises transformed into singleowner limited enterprises or shareholding companies regulated by the Enterprise Law.
3.2. Telecommunications
The telecom sector development policy of Vietnam is centred upon shifting from a
monopolistic to competitive telecom sector. The general approach of liberalisation is to expand a
competitive market in parallel with strengthening the dominant role of the SOEs; to allow the
qualified domestic enterprises, mainly SOEs, to provide basic as well as value added services,
and then to open up the telecom market to foreign players in accordance with international
commitments.
Regulatory framework
Until 1997, VNPT performed as both regulator and operator in the telecom sector.
Following the common institutional model adopted in the competitive telecom sector in the
world, the General Department of Post and Telecom (GDPT), and now the Ministry of Post and
Telematics (MPT), was established on the basic of splitting off the policy and regulatory
functions from the operator functions of VNPT. The MPT now plays the role of regulator while
VNPT is the incumbent operator providing both telecom networks and services in Vietnam.
However, unlike the best practice model of regulatory agency, MPT is not truly “separate
regulator” as it still involves in the management of VNPT though its roles as representative of
state capital in VNPT, especially through senior personnel appointments.
The key functions and responsibilities of the organization of the MPT are outlined in the
Government Decree No. 90/2002/ND-CP of November 11, 2002. The Decree sets out a wide
range of functions and responsibilities under four different groupings, which include:
-
Legal documentation - Drafting laws, ordinances, and policies on telecom; issuing
decisions, directives, and circulars to implement laws and regulations; and issuing
regulations, rules, and technical standards;
-
Economic planning - Submitting strategic plans and development plans and radio
frequency spectrum plans; and setting prices for telecom services;
-
Supervision over technical and professional issues - Issuing and revoking operator
licences; managing the operation of national telecom lines; issuing regulations for
dealers in telecom services, etc; and
-
Coordinating international relations.
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A most recent significant landmark in the development of a regulatory framework for the
telecom sector in Vietnam was the ratification of the Ordinance No 43/2002 on Posts and
Telecommunications in May 2002, which took effect on October 1, 2002 and replaced the
Decree No.109/1997/ND-CP dated November 12, 1997 on the network and telecom services.
The Ordinance aims at encouraging enterprises from all economic sectors to engage in telecom
activities in a fair, transparent, and competitive environment, in order to facilitate the application
and promotion of telecom technology, and to enhance the standard of living.
Though the State monopoly over the telecom network infrastructures is thereby
abolished, network infrastructure provider status is limited to only SOEs or enterprises in which
the State holds controlling shares. Licensed network infrastructure providers can establish a
public telecom network to provide directly, or re-sell telecom services in accordance with their
licenses. On the other hand, enterprises from all economic sectors can provide telecom services
to the public, and several different types of licenses are described. Licensed service providers can
establish telecom equipment systems within the scope of their establishments and public service
points, and provide Internet access services, and re-sale telecom services as prescribed in their
license.
An open interconnection regime is set up by the Ordinance. All telecom network
operators are entitled to interconnect with all other telecom networks on “fair and reasonable”
conditions. Particular obligations are placed on parties who are in a dominant position in respect
of provision of interconnect and who control “essential facilities” (though this key term is left
undefined). These obligations provide for good faith negotiations and prohibit refusal to
interconnect.
Interconnection is to be governed by regulations issued by the regulator – the MPT, and
interconnect agreements must be registered with the regulator, at which point they take effect.
Time limits are to be prescribed for the conclusion of interconnection negotiations, failing which
the regulator has the power to first arrange mediation between the parties, and if that fails, to
intercede and determine an outcome.
In addition to mandating access to essential facilities, the Ordinance also prescribes a
threshold for presumed market dominance, which is 30 percent market share in respect of one
type of service in a licensed geographical area). Market dominance is determined by the telecom
regulator and will attract specific restrictions, for instance, a requirement for separate accounting
and “supervision and surveillance” of market share, tariffs, etc.
Tariffs remain subject to stringent regulation, in accordance with both the Ordinance and
the Ordinance on Pricing. There are five types of charges set out in the Ordinance, which include
both retail tariffs and wholesale charges:
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
Important telecom services that affect various sectors and socio-economic development
(these could be either retail tariffs or wholesale charges);

Services provided for community service purposes (these appear to be retail tariffs only);

Services provided by enterprises that are in dominant positions in the relevant market
(would mostly be retail tariffs, but could also cover wholesale charges for services that
are resold by Service Providers, charges for facilities access, etc.);

Interconnection charges; and

All other services not covered in the categories above.
Different rules apply to these 5 categories.
The Prime Minister has full discretion to determine tariffs for important telecom services
that affect various sectors and socio-economic development – a very wide category, the precise
interpretation of which remains to be determined.
The “State management authority” or regulator (the MPT) has authority to determine
tariffs for services provided for community service purposes and for those services provided by
enterprises that are in dominant positions in the relevant market. The basic principle is that retail
tariffs should be determined on a cost basis, with regard to contributions that may be required to
be made to universal service and development goals.
Enterprises may decide its own tariffs for all services other than those listed as being
subject to regulation.
Calculation of interconnection charges will be based on cost. However, actual
interconnection charges will be determined by adding a contribution for community service
obligations (CSOs), which will be determined precisely by the regulator, to that cost-based
charge.
Cross-border supply of telecom services is also regulated in the Ordinance. Foreign
telecom enterprises are only allowed to provide telecom services across border into Vietnam’s
territory if they have business contracts or commercial agreements with Vietnamese enterprises,
which manage and operate the international gate34.
Telecom enterprises in Vietnam are obliged to contribute to the public telecom services,
which consist of compulsory services and universal services. Compulsory services are services
34
The openness of Vietnamese telecom sector to the foreign competition is marked by the commitments in the
United States – Vietnam Bilateral Trade Agreement. According to these commitments, Vietnam allows US
companies to set up joint ventures with the Vietnamese partners authorised to provide telecom services. US
companies have the right to establish joint ventures with a 50 percent cap on U.S. equity participation in the value
added services (e.g., e-mail, voice mail, electronic data interchange, data processing) from the beginning of
December 2003 and in Internet services from the beginning of December 2004. The US companies are also allowed
to set up joint ventures with the maximum equity share of 49 percent in the basic telecom services (e.g., wireless
services, certain data services, leased circuit) from the beginning of December 2005 and in basic voice telephone
services (e.g., fixed local, long distance and international) from the beginning of December 2007.
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provided on the basis of state’s requirements for economic and social development, defence and
securities. Universal services are defined as telecom services provided to every people under the
conditions, prices, and quality determined by the relevant authorities. VNPT determines the list
of public telecom services, whereas two mechanisms for implementing the universal services
obligation are prescribed by the Ordinance as interconnection charges (which, as mentioned
above, include contribution to the public services) and universal services funds.
3.3. Financial services
3.3.1. Banking
The process of transforming the banking sector into a commercially based operation in
Vietnam has made very slow progress. The government embarked on a comprehensive banking
sector reform programme in 2001, underpinned by market-based actions and state enterprise
reform. The goals of this reform programme are to ensure the stability of the banking system, to
expand banking services, and to rationalise domestic resource allocation. The banking sector has
experienced some liberalisation in recent years, which has helped to improve resource allocation.
In June 2002 the State Bank of Vietnam (SBV, the central bank) removed the cap on interest
rates for Vietnam Dong loans, thereby giving commercial banks more freedom of manoeuvre
and enabling them to deal with short-term changes in market liquidity. Interest-rate spreads have
remained fairly stable since then, at around 300 basis points, with annual lending rates remaining
around 9-10 in 2001-04.
The reform programme focuses on three main areas: (i) the restructuring of joint-stock
banks; (ii) the restructuring and commercialisation of the state-owned commercial banks; and
(iii) improving the regulatory framework and enhancing transparency. In January 2004 the SBV,
which acts as the supervisory and regulatory body for the banking sector, began providing access
to its industry analysis and company financial information. By improving the transparency of the
financial system, the SBV is hoping to reduce credit risk and thereby enhance the stability of the
system.
The SBV was broken up in 1988 to assume only an enhanced regulatory role, with
commercial activities being shifted to other institutions. Since 1988, and particularly since 1992,
Vietnam has moved to a diversified system in which state-owned, joint-stock, joint-venture and
foreign banks provide services to a broader customer base. However, the four main state-owned
commercial banks - the Bank for Investment and Development of Vietnam (BIDV), the Bank for
Foreign Trade of Vietnam (Vietcombank), the Industrial and Commercial Bank of Vietnam
(Vietincombank) and the Bank for Agriculture and Rural Development (VBARD) – still account
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for 70-80 of all lending activity. These banks are seriously undercapitalised. In 2002 they had
total chartered capital of VND5.6trn (US$360mn), representing a capital adequacy ratio of 2.8
(international practice requires a minimum capital adequacy ratio of 8). The government recently
completed a process of recapitalising the state-owned commercial banks through the issuance of
special government bonds. In four phases of the recapitalisation scheme, the government
disbursed an equivalent of around US$675mn to the state-owned commercial banks (SOCBs). At
end-June 2004, the VBARD reportedly had a capital adequacy ratio of 6.2, slightly higher than
the ratios for Vietcombank and Vietincombank - 4.7 and 4.4 respectively.
Foreign banks face limits on the amount of local currency they can mobilise, and this has
stifled their lending activities. In 2003 the share of foreign banks in lending activity dropped to
7.6, from 8.4 in 2002, before picking up again to around 8.3 in 2004. Most lending by foreign
banks in Vietnam has been for short-term trade financing. In total, at end-2004 there were 28
foreign bank branches, 46 representative offices and four joint-venture banks.
Banking services in Vietnam are governed by the Law on Credit Institutions dated 12
December 1997 and is replaced by the Law 20/2004/QH11 on Amendment of and Addition to
the Law on Credit Institutions dated 15 June 2004. The amendments to the Law on Credit
Institutions will become effective as of 1 October 2004. Under the amended Law on Credit
Institutions, the forms in which foreign commercial banks are permitted to establish a
commercial presence in Vietnam are expanded from joint venture banks (with foreign capital
contribution not exceeding 50 of charted capital), foreign bank branches and representative
offices to also include 100 foreign owned banks. Under Law 20/2004/QH11, foreign credit
institutions are allowed to contribute capital contribution and to purchase shareholdings in banks
operating in Vietnam.
The US-VN BTA, recently ratified, has a significant implication on the liberalisation of entry
requirements for US bank into the Vietnam market (See Table 9), which was over a relatively
short time horizon. Once Vietnam concludes its negotiations on accession to the WTO, the same
condition will apply to banks domiciled in all WTO member states. This, if not carefully
managed so as to provide benefits for customers and for the economy as a whole, may have
deleterious effects on the remaining weak financial system of the country, which has been
suffering from a high level of inefficiency nurtured during decades of isolation from and
protection against market discipline and foreign competition.
Table 3.3.1 - Timeline of BTA Commitments to Open the Banking Sector to Us banks
71
Source: Matthias Lücke and Dean Spinanger, Liberalising International Trade in Services: Challenges and
Opportunities for Developing Countries, Kiel Discussion Papers, 2004
Decree 79-2002-ND-CP of the Government dated 4 October 2002 on Organisation and
Operation of Finance Leasing Companies provides for the establishment and operation of finance
companies in Vietnam, including joint venture and 100 foreign owned finance companies, with
no distinction between the scope of activities of foreign invested and domestic finance
companies. A “finance company” is defined as a non-banking credit institution which uses its
own capital or raises capital to conduct lending and investment and provides financial and
monetary consultancy services, but which is not permitted to provide payment services or to
receive deposits for a term of less than a year.
3.3.2. Insurance
Before 1993, state-owned Vietnam Insurance (Bao Viet) was the only insurance
enterprise operating in Vietnam. At the end of 1993, economic entities of different types of
ownership were allowed to participate in the insurance market, setting the foundation for the
emergence and development of Vietnam’s insurance market with diversified insurance lines and
ownership forms.
The general policies for the development of Vietnam insurance sector are stated in the
Strategy for Development of Vietnam’s Insurance Market for the 2003-2010 period. According
to the Strategy, the state sector participation into insurance business activities will be limited by
ending further investment by the state in the insurance brokerage segment, not allowing SOEs to
use the state capital for establishing new insurance enterprises or contributing capital in
insurance enterprises in specific industries. At the same time, the non-state sector is allowed to
establish insurance shareholding companies provided that they can satisfy certain conditions.
72
Furthermore, insurance companies are encouraged to expand their activities and operation scope.
FIEs will be subject to the same policies as domestic ones. The State respects the autonomy of
enterprises and will gradually apply state management in accordance with the principles and
standards of international insurance practices and without intervention into the enterprises’
activities.
Vietnam’s insurance industry is regulated by the Law on Insurance dated December
2000, and the Decrees 42-2001-ND-CP and 43-2001-ND-CP. Under the Insurance Law, foreign
invested insurers and brokerage companies are permitted to set up full business operations in
Vietnam. These operations can be 100 foreign-owned enterprises (FOE), representative offices,
or joint ventures with Vietnamese partners. However, 100 FOEs are only permitted on the basis
of the development needs of Vietnamese insurance market, with considerations to the number of
existing suppliers, the operation of these enterprises, and their impact on the stability of the
market, and the overall economy. Currently, only 3 100 FOEs have licenses to provide life
insurance services in Vietnam – AIA, Prudential, and Manulife Financial Corporation.
Allianz/AGF currently has a JV license to provide non-life insurance services and is seeking to
convert this into a 100 FOE license. US based Crawford Company has also been granted a 100
foreign owned license to provide investigative services to insurance companies, self-insured
companies and government entities.
Under Vietnam’s Insurance Law which applies to both domestic and foreign companies,
all insurance companies must: (1) have at least USD$10mn in capital; (2) have experienced and
effective management; and (3) they must prove that there is a need for such services.
Decision 175-2003-QD-TTg dated 29 August 2003 by Prime Minister defines the
development strategy for the Insurance Market in Vietnam in the period 2003-2010.
The
strategy states that licensing of foreign invested insurance businesses operating in Vietnam must
conform to Vietnam’s market development scope and requirements, its integration roadmap and
international commitments. Decision 175-2003-QD-TTg states that to receive a license, a
foreign-invested insurance company should: (1) be a large company with experience in insurance
business with an international network; (2) be a company of a country that is a big investor or
have a large trade and investment volume with Vietnam; (3) be a company with long-term
investment, and contribute to market development through training cooperation programs,
technology transfer, and technical assistance to Vietnam.
In 2004, a re-organisation scheme of insurance enterprises in Vietnam’s insurance sector
was started. Bao Viet is transformed into a business conglomerate and is divided into Bao Viet
Vietnam, which deals with non-life insurance, and Vietnam Life-Insurance, which provides life
insurance services. Another large state-owned insurance enterprise, Bao Minh, is also equitised
73
with 11 shareholders (all of them are state-owned enterprises). The Vietnam National
Reinsurance is also equitised with 13 shareholders being non-life insurance enterprises operating
in Vietnam. Equitisation of state-owned insurance enterprises is aimed at creating more
dynamics insurance sector.
3.4. Pharmaceuticals
Since the 1960s, as Vietnam was only beginning to its post-war reconstruction of the
economy, the Ministry of Health (MoH) has already issued a number of Regulations covering
areas such as clinical studies, management of drug use in the State Agencies and management of
toxic and narcotic drugs. The MoH began to be involved in management of drug production and
issued Regulations concerning estimating and planning of national drug production in order to
ensure that drug needs in hospitals were met.
Subsequently, together with the progress of the Doi Moi process, a new Vietnam National
Drug Policy (VNDP) was published in June 1996, and the Drug Administration of Vietnam
(DAV) was established on 13 August 1996. Over the last five years, the DAV has developed
several Technical Regulations, which have been issued by the MoH. These Regulations were
developed in accordance with the VNDP and international regulations and standards. The
Ministry began drafting Vietnam’s first cohesive Drug Law in 1997, when it was recognised that
the 30 different Regulations that had been introduced since 1954 were no longer adequate to
meet the needs of a new market-oriented economy (See Table 10). Prior to March 1989, drugs
came largely to Vietnam from socialist countries and were not registered, although drugs of
domestic origin did require authorisation from the MoH. Vietnam’s pharmaceutical industry is
expanding rapidly, requiring an intensive process of consultation, discussion, and drafting for the
development of a new legal framework. At present, the draft Drug Law is being debated at the
National Assembly and expected to be passed during 2005.
Table 3.4.1 - Pharmaceutical Technical Guidelines issued by the Ministry of Health
Date issued
18 October 1995
Title
Instruction to foreign companies concerning drug
registration
9 September 1996 ASEAN Good Manufacturing Practice Guidelines 3rd
edition 1996
July 2000
Circular on guiding drug & cosmetic import-export that
directly affects human health
30 March 2000
Guidelines to implementation of the regulation on
labelling of drugs & cosmetics directly affecting human
health
21 January 1998
Circular: Providing guidelines for the implementation of
the decree on private practices in medical &
pharmaceutical sector, and specifying articles concerning
74
Code
No 1516BYT/QD
No 07/2000/TT/BYT
No 1946/YT/QLD
No 01/1998/TT.BYT
15 October 1998
1. August 2001
20 May 1999
28.Oct.1996
pharmaceutical practices in the decree
Circular: Guiding reception, management & use of
donated drugs in Vietnam
Instruction to foreign pharmaceutical companies for
preparing applications for company registration to the
MoH, Vietnam
Instruction for foreign companies concerning registration
of drugs
About promulgating ‘Vaccine and biological product
registration stipulations’
No 13/1998/TT.BYT
No 17/2001/TT.BYT
No 2010/BYT-QD
Product registration
Products requiring marketing authorisation and registration (pharmaceutical specialities)
include all medicinal products which are not extemporaneously prepared in a pharmacy and
which are sold in the package designed for the individual consumer. Different dosage forms and
different strengths of a pharmaceutical product are considered to be separate products requiring
separate registration.
Vaccines, immunologicals, blood products and products of biotechnology or genetic
engineering are considered to be pharmaceutical products but are registered with the Department
of Preventive Health. Regulations relating to radio-pharmaceuticals, surgical materials, devices
and in vitro diagnostics are currently under development.
It is recommended that any application for registration of a pharmaceutical product to be
imported should be filed by an authorised agent residing in Vietnam, on behalf of the
manufacturer. The price in the country of export and other countries should be included in the
registration file, although there are no specific regulations on drug pricing in Vietnam.
Review of applications for product registration is conducted by a Committee for
Approval of Drugs and Cosmetics (CADC).
Revocation and compulsory variation of authorisations
Product registration is normally valid for five years although sometimes only two years
are given. At five-yearly intervals, investigations will be made to check whether the prerequisites
for registration still hold and to determine whether marketing authorisation should continue by
the CADC. The CADC may revoke a registration if the product is no longer considered
medically justified. The manufacturer is normally given the opportunity to give comments before
the decision is made. When an originating country of an imported product revokes marketing
authorisation, the DAV will also act. There is also periodic control of products on the market by
the Institute and Sub-Institute for Drug Quality Control.
Fees and tariffs
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There are fees and tariffs in Vietnam for registration and import of drugs and substances.
These are low in comparison with tariffs for other goods imported into Vietnam, and compared
with fees in other countries. There are different and higher fees and tariffs for foreign drugs
compared to domestic drugs. The DAV and the health sector receive a portion of these fees but
the balance goes to general government revenue.
Manufacturing
Manufacturers require authorisation to manufacture or assemble medicinal products. The
Ministry of Planning and Investment (MPI) issues authorisations for State-owned bodies.
Authorisations for private companies are issued by the DAV for a specified period of time and
are subject to regular inspections. The MoH’s Drug Inspection and Healthcare Inspectorate
conducts inspections periodically and makes recommendations to the DAV.
Import
Imports of drugs in bulk are allowed only in connection with manufacturing under
contract. The manufacturer must prove that production standards comply with those of the code
of ASEAN GMP (Good Manufacturing Practice Standards) established by the WHO.
Export
There are no specific requirements for sole export pharmaceutical products other than
that the producer must be an authorised manufacturer in Vietnam. The DAV issues export
certificates. With the agreement of importing countries, the DAV will allow Vietnamese
manufacturers to print labels in the language of the importing country provided there is an
indication that the drug is made in Vietnam.
Labelling and leaflets
Article 4 of the Regulation on Labelling of Drugs and Cosmetics that Directly Affect
Human Health (416/2000/QD/BYT) requires that labels and packaging leaflets must be in
Vietnamese. A further document (95/2000/TT-BYT) states that with regard to the languages
used on product labels:
(i)
labels of drugs produced for local use must be in Vietnamese; if there is a
need to add foreign language wording, then this is permissible, but the size of
wording must be smaller than the Vietnamese text;
(ii)
labels of drugs produced for export only can be legally labelled in Vietnam
with the required languages of the countries or areas to which the drugs are
exported;
(iii)
for foreign drugs registered for import or distribution in Vietnam, languages
used on the label must be in Vietnamese or in English or an additional
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language may be used but in smaller size; there must be an instruction for drug
use in Vietnamese attached to the commercial packaging of the drugs.
Labelling is pre-cleared as part of the registration procedure. Package leaflets (Patient
Information Leaflets, as described in Regulation 416/2000/QD/BYT) are compulsory and the
product information should be written in compliance with the approved drug application.
Leaflets must be in Vietnamese.
Advertising and promotion
Advertising of pharmaceuticals is only allowed in publications specifically targeted at
doctors, nurses, pharmacists and other health professionals, or for students in these fields.
Written and oral promotion to these groups is also allowed provided the promotion is not public.
The Information and Advertising Control Division of the DAV checks that advertising and
promotion of drugs is accurate and has the authority to ban advertisements and compel the
advertiser to publish corrections or explanations regarding any advertisement found to be at fault.
Article 24 in the Regulation of Promotion and Advertising requires a pharmaceutical company to
train medical representatives. One sample of the smallest commercial pack of an already
marketed pharmaceutical speciality can be sent or delivered to a medical doctor; veterinarian or
dentist, provided the drug is not a narcotic.
Supply
There are two main categories of pharmaceuticals in Vietnam: prescription-only and nonprescription products, although classification of these two categories is not always clear. Both
classes of products are restricted to distribution in pharmacies only, although in rural areas
non-prescription products are available in a limited number of licensed shops under the
supervision of a pharmacy. Pharmacists may only open original packs and sell portions of them
under special circumstances. Prescription-only products are normally dispensed with a package
leaflet when one is available.
Controlled drugs
Vietnam is a party to the UN 1961 Single Convention on Narcotic Drugs, the 1971
Convention on Psychotropic Substances and the 1988 Convention Against Illicit Traffic of
Narcotic Drugs and Psychotropic Substances. Within Vietnam drugs subject to special control
are under the remit of the Narcotics and Psychotropic Drug Control Division, DAV.
Post-marketing requirements
At the end of each year a company is required to report to the MoH on its business and
status of its products on the market.
After marketing authorisation has been given, a manufacturer is required to report to the
registration authorities any relevant scientific data, both technical and medical, regarding major
77
or minor changes concerning the drug, its production, and marketing. While there is no set
procedure for this reporting, it should be done in a manner typically found in other regulated
countries. Mechanisms exists to allow for change under the same marketing authorisation; while
it is possible to vary the composition of the product or its specifications, or change the labelling
claims, such changes can only be made with prior approval from the authorities and are
considered to constitute a new product which therefore needs new applications and new files.
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Chapter 4
Consumer protection
The complementarities between competition and consumer protection is no longer a new
and debatable issue in any discussion pertaining to competition policy and law, but rather a
settled one.
Competition presses producers to offer the most attractive price and quality options. In
competitive markets, producers must gain new sales, new clientele by satisfying consumer needs
by increasing the range of choices available, since if consumers dislike the offerings of one
seller, they can turn to others. This is because the availability of substitutable goods at acceptable
prices in competitive markets enables consumers to shift purchase, which imposes a rigorous
discipline on each seller to satisfy consumer preferences.
Further than increasing the choices available to consumers, in competitive markets, longterm competitive strategies make it imperative for producers to provide correct and useful
information about their products, to fulfil promises concerning price, quality, and other terms of
sale, and thus to improve their image toward the consumers. Producers also need to make
innovation a continued practice if they do not want to be left behind in the race to satisfy the
changing demand. Thus, in its mandate of ensuring the markets function competitively,
competition policy and law becomes an effectively tool to promote consumer welfare, which is
also the objective of consumer protection policy.
However, since markets are not always competitive, naturally or as a consequence of
private intentions, and since market failures have become an inevitable by-product of any
liberalised and open market, producers are not always punished for their dishonesty or deterred
from committing frauds. Information asymmetry and limited awareness, besides, also make
consumers vulnerable to cheating, frauds or scam. While competition policy and law takes care
of competitive behaviours of competitors, regulates conducts if the monopolists, and punishes
the cartelists, etc, it might somehow overlook the smaller grief of the common man, the
consumers. The merits of competition are negated before reaching the final goal – consumer
welfare.
Consumer protection policy has a vital role to play in addressing this type of problems. It
works to ensure that consumers can make well-informed decisions about their choices and that
sellers will fulfil their promises about the products they offer. In other words, consumer
protection policy prevents producers from engaging in unfair practices while seeking to increase
their sales.
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Unfair trade practices not only harm the consumers, they also harm other market players
in the process, and more importantly, they harm the market as a whole as well. Revelations that
they are cheated by a producer, a group of businesses might lead the consumers to distrust an
entire industry or market, which in turn will affect sales in that market negatively. In a way,
while preventing and punishing unfair trade practices, consumer protection policy does more
than safeguarding the interests of the consumers or promoting consumer welfare, it comes back
to facilitate competition.
This chapter looks at the laws and institutions relevant to consumer protection in
Vietnam, the overall state of consumer welfare, as well as the most prevalent concerns in the
country in the context of market liberalisation and reforms.
4.1. Laws and institutions relevant to consumer protection in Vietnam
4.1.1. Ordinance on the Protection of Consumers’ Interests
The Ordinance on the Protection of Consumers’ Interests of Vietnam originated from a
recommendation made by the Vietnam Standards and Consumers Association35 (VINATAS) in
1990. The recommendation was approved by the GOV and VINASTAS has been assigned to
draft the legislation. From 1991 to 1995, VINASTAS has been actively engaging in the drafting
process, with assistance from the International Organisation of Consumer Unions (IOCU). In
1995, the draft was submitted for approval, however, by the Ministry of Science, Technology
and Environment (MOSTE), since according to Vietnam regulations, only a State agency can
make such submission. After more than 20 times of revision, the Ordinance on the Protection of
Consumers’ Interests No 13/1999/PL-UBTVQH10 was finally approved by the Standing
Committee of the National Assembly on April 27th 1999, taking effect from October 1999.
The Ordinance, though still deficient in many aspects and rather inclined to defining
general principles rather than providing for any specific measures, has pointed out to some extent
the consumers’ problems in Vietnam, highlighted the responsibility of the whole society in the
protection of consumers and provided for a State agency to take charge of issues related to
consumer protection in the country. It defines the general principles in consumer protection in
accordance with the 08 consumer rights framed by the United Nations36 (Art. 8 – Art. 13,
35
VINASTAS is a Vietnamese civil society organisation, founded in 1988. The Association has two main tasks: (i)
promotion of standardization, metrology and quality, and (ii) protection of consumers. VINASTAS focuses its
activities in educating the consumers, providing them with information to make the consumers aware of their
position in the society, their power in the market, as well as their legitimate rights and interests in accordance with
the law. Currently, there are 18 branches of VINASTAS in provinces and cities throughout the country. Every year,
the association receives about 300 complaints from consumers, of which 70-80 per cent are resolved. Normally,
unsolved complaints involve lost guarantees or invoices.
36
The UN Guidelines for Consumer Protection, adopted by the General Assembly in 1985, are an internationally
agreed statement of laws necessary for consumer protection, of good practice in their implementation, and of other
80
Chapter 2 – Rights and responsibilities of the consumers). It also specifically prohibit some acts
in contravention of such rights (Art. 7), such as:
(i)
production and doing business of prohibited goods, fake goods;
(ii)
production, doing business and consumption of goods, services which severely
contaminate the environment, cause damages to the life and health of the people;
and which is contrary to the fine customs and traditions of the people;
(iii)
provision of untruthful information and misleading advertisement; and
(iv)
all other acts which aim to cheat the consumers.
Accordingly, any organisation or individual undertaking production and/or business
activities (having business registration) shall have to register, declare the standards and quality
applicable for their goods, services. They also have to ensure exact and true information,
advertisement on their goods, services; make public the price of goods, services; declare the
conditions, duration, and location of warranty and provide clear instructions relating to the use of
goods, service to the consumer (Art. 15). They shall be responsible for resolving the complaint
launched by the consumer on their goods, services which do not comply with the declared
standard, quality, quantity, price or with the contract signed; and shall be responsible for carrying
out warranty of their goods, services for the customer (Art. 16). In addition, they shall be
responsible for gathering, studying, considering feedback of the consumer; and shall be
responsible for refunding, compensating against the damage for the consumer in accordance with
the law (Art. 17).
Consumers can lodge complaints on abuses in contravention of the Ordinance to the State
agency responsible for protection of consumer interests, who will consider and resolve the
disputes, first through mediation/conciliation, and if not successful though administrative
measures. Consumers also have the right to bring such disputes to the court of law for resolution
(Art. 23). Breaches of the laws and regulations on protecting consumers’ interests, depending on
the gravity and extent, shall be subject to discipline, administrative fine or prosecution of
criminal liabilities. The violators shall also have to compensate to the consumer for the damages
caused (Art. 26).
Detailed guidance for implementation of the Ordinance is prescribed in the Government
Decree 69/2001/ND-CP of the Government ("Decree 69"), which governs all organisations and
individuals producing and trading in goods and services ("producers and traders") and all
action needed to promote consumer rights - for example, through education and the provision of consumer
information. Fully implemented, they provide a basic framework of protection, advice and support to enable
consumers to operate confidently and effectively in a market economy. According to the Guidelines, the consumers
have: (i) the right to safety; (ii) the right to be informed; (iii) the right to choose; (iv) the right to be heard; (v) the
right to satisfaction of basic needs; (vi) the right to redress; (vii) the right to education; and (viii) the right to a
healthy environment.
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purchasers and users of goods and services for consumption for living purposes and work
requirements ("consumers"), expressly excluding purchasers and users of goods and services
with the aim of production and trading. According to Decree 69, producers and traders must:
-
ensure that consumers may make their own choice, independently purchase or not
purchase, and agree or not agree to any model/type of goods, and any method or
terms and conditions of services;
-
create favourable conditions so that consumers may purchase goods and services the
quality of which is ensured, at an appropriate price, and which include measures for
warranty and repair;
-
declare standards and quality (where required) and ensure they satisfy same; ensure
quality, hygiene and safety of goods and services not on the list requiring standards to
be declared;
-
comply with regulations on labelling and hygiene, safety and quality;
-
ensure accurate weight, measurement and numbers of goods and services;
-
provide accurate and truthful information on country of origin, labelling of goods,
place of production, use, special characteristics, standards, grade, main components,
date of manufacture, any existing quality inspection and quality control certificates,
and instructions on transportation, use and storage of goods or services;
-
list publicly the prices of all types of goods and services; deliver to consumers correct
invoices;
-
with respect to goods and services which could potentially endanger health or cause
environmental pollution, draw this to the attention of consumers and warn them in
advance; and explain clearly and provide instructions on methods of using the goods
and measures to avoid harm and damage;
-
not issue any rules which are contrary to law or apply pressure to consumers
regarding undertakings, terms and conditions of sale of goods or services;
-
discharge obligations regarding warranties, repair, exchange of goods, refunds and
taking back goods already sold, and other liabilities to consumers correctly in
accordance with the commitments they have agreed; and not delay or refuse to fulfil
these obligations; and
-
guide consumers on the rational and economical use of goods and services.
The Ministry of Science, Technology and Environment (MOSTE) is assigned to take
charge of State management of consumer protection, with the assistance of the General
Department of Standards, Weights Measures and Quality. Departments of Standards, Weights
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Measures and Quality under provincial-level people's committees are responsible for undertaking
State management of protection of consumers' rights within their localities.
With respect to a number of special goods and services, the Government assigns specific
responsibility for management and inspection of consumer protection as follows:
-
Ministry of Trade: market circulation of goods and services prohibited from
production, trading, export or import, or whose production, trading, export or import
is subject to conditions; listing of prices of goods and services and compliance with
the listed prices; dealing with fake and poor quality goods, goods in breach of the
labelling regulations, and goods and services which fail to ensure safety or which
cause harm to the health of consumers; compliance with the law on commercial
advertisements;
-
Ministry of Health: pharmaceutical drugs and products, medical instruments and
equipment, all types of cosmetics which directly affect people's health, the quality of
both fresh and industrially processed foodstuffs, and all types of beverages, alcohol
and tobacco;
-
Ministry of Construction: all stages of civil construction works;
-
Ministry of Transport and Communications: transport facilities by sea, road and rail,
railway stations and ports, and all equipment used with transport facilities aimed at
ensuring safety of consumers of transport services or when consumers purchase such
equipment for use;
-
Civil Aviation Administration of Vietnam: transport facilities by air, airports, and
facilities, equipment and instruments supporting air transport;
-
Ministry of Culture and Information: dissemination of information and advertising
about goods and cultural products on the mass media, and of press and publishing
activities;
-
Ministry of Agriculture and Rural Development: quality of fertilizer, veterinary
medicines, plant protection agents, animal rearing drugs and plant breeding agents,
and other biological products assisting cultivation and breeding, and of animal feed;
-
Ministry of Industry: quality of all types of goods being industrial explosives,
industrial chemicals, and industrial goods, machinery and equipment;
-
Ministry of Marine Products: quality of all types of marine animals and plants, of
feed for marine life, of seafood, of marine protection agents and marine veterinary
medicines, and of fishing nets and fishing services;
-
General Department of Posts: charges and quality of postal and telecommunications
services, networks, supplies, equipment and works, and of the Internet network;
83
-
MOSTE: scientific, technological and environmental activities; standards, weights,
measures and quality; technology ownership.
The Decree also provides for the legal framework for establishing and developing a
consumer protection organisation in Vietnam, which must (i) be an organisation representing
consumers; (ii) not be connected with the commercial expansion of any producer or trader; (iii)
not advertise for any commercial purpose during its activities; (iv) not exploit any information or
guidance to consumers aimed at business purposes; (v) not be influenced by, or be dependent on
the receipt of aid from, either domestic or foreign organisations and individuals during its
activities. Consumer protection organisations may receive consumers' complaints and organise
conciliation between consumers and producers and traders; and, where requested by consumers,
guide and assist consumers or their representatives to bring complaints before the relevant State
authorities for resolution.
Attached to Decree 69 is a list of legal instruments applicable to deal with and impose
penalties for administrative breaches of protection of consumers' rights:
Table 4.1.1 - Relevant legal instruments on administrative violations against consumers’ rights
1995 Civil Code
Article 294
Performance of Obligation to Deliver Objects
Article 295
Performance of Obligation to Pay Money
Article 310
Liability to compensate for Damage
Article 311
Liability for Failure to Perform Obligation to Deliver Objects
Article 312
Liability for Failure to Perform Obligations to Perform Acts or not to Perform Acts
Article 313
Liability for Late Performance of Civil Obligation
Article 314
Liability for late Acceptance of Civil Obligations
Article 423
Quality of Objects for Sale and Obligation
Article 428
Liability for Delivery of Objects in Incorrect Quantities
Article 429
Liability for Delivery of Incomplete Integrated Objects
Article 430
Liability for Delivery of Objects of Incorrect type
Article 464
Liability for Intentional Giving of Property not under One’s ownership
Article 549
Liability to Compensate for Damage
Article 612
Damage Caused by Infringement of property
Article 613
Damage Caused by Harm to Health
Article 614
Damage Caused by Harm to Life
Article 616
Period of Entitlement to Compensation for Damage Caused by Harm to Life or Health
Article 632
Compensation for Damage Caused by Infringement of Consumer’s Interests
1997 Commercial Law
Article 9
Protection of Legitimate Rights of producers and Consumers
Article 9.4
Consumers May Establish Organization protecting Consumer’s Legitimate Interests in
Accordance with Law
Article 245
Contents of State Administration of Commerce
Article 245.4 Provision of Guidelines for Rational and Economical Consumption
Article 245.6 Quality Control of Goods Domestically Circulated and of Goods Import and Exported
Criminal Code
Article 156
Offences in Production and Sale of Fake Goods
Article 157
Offences in Production and Sale of Fake Goods being Cereals, Foodstuffs, Preventive and
Curative Medicines
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Article 158
Offences in Production and Sale of Fake Goods being Animal Feed, Fertilizer, Veterinary
Drugs, Plant Protection Agents, Products Assisting Cultivation and Breeding
Offences of Infringement of Industrial Property Rights
Offences of Stockpiling, Transferring and Circulating Counterfeit Money Orders and Bonds
Article 171
Article 180
Ordinances
Ordinance on Veterinary Medicine dated 4 February 1993
Ordinance on Plant protection and Quarantine dated 4 February 1993
Ordinance on Civil Execution dated 17 April 1993
Ordinance on private Medical and pharmaceutical practice dated 30 September 1993
Ordinance on Resolution of Economic Court Proceedings dated 16 March 1994
Ordinance on Resolution of Administrative Breaches dated 6 July 1996
Ordinance on Procedures for Resolution of Administrative Breaches dated 21 May 1996
Ordinance on Protection of Consumer’s Rights dated 27 April 1999
Ordinance on Weights and Measures dated 6 October 1999
Ordinance on Goods Quality dated 24 December 1999
Government Decrees on Administrative Breaches
Decree 49-CP dated 26 July 1995 – Road Traffic and Urban Order and Safety
Decree 88-CP dated 14 December 1995 – Culture Activities and Social Evils
Decree 01-CP dated 3 January 1996 – Trading
Decree 22-CP dated 17 April 1996 –Taxation
Decree 16-CP dated 20 march 1996 – Customs
Decree 24-CP dated 18 April 1996 – National Defence
Decree 26-CP dated 26 April 1996 – Environmental Protection
Decree 77-CP dated 29 November 1996 – Forestry
Decree 78-CP dated 29 November 1996 – Plant Protection and Quarantine
Decree 38-CP dated 25 June 1996 – Labour
Decree 49-CP dated 15 August 1996 – Security and Order
Decree 46-CP dated 6 August 1996 – Health
Decree 48-CP dated 12 August 1996 – Marine Resources
Decree 04-CP dated10 January 1996 – Land Management and Use
Decree 35-CP dated 23 April 1997 – Minerals
Decree 48-CP dated 5 May 1997 – Urban Construction of Housing and Infrastructure
Decree 57-CP dated 31 may 1997 – Goods Measurement and Quality
Decree 79-CP dated19 June 1997 – Telecommunications
Decree 18 CP dated 24 February August 1997 – Banking
Decree 12-1999-ND-CP dated 6 March 1999 – Industrial Property
Decree 49-1999- ND-CP dated 8 July 1999 – Accounting
Decree 93-1999- ND-CP dated 7 September 1999 – Statistics
Decree 67-1999-ND-CP dated 7 August 1999 - Complaints and Denunciations
4.1.2. Other relevant important legislations
In addition to the Ordinance on the Protection of Consumers’ Interests, other prevailing
legislations, which are also pertaining to the issue of consumer protection in Vietnam, include
the Ordinance on Food Hygiene and Safety No 12/2003/PL-UBTVQH11, the Ordinance on
Goods Quality No 18/1999/PL-UBTVQH10, the Ordinance on Measurement No 16/1999/PLUBTVQH10, the Ordinance on Prices No 40/2002/PL-UBTVQH10, and the Commercial Law
1997.
The Ordinance on Food Hygiene and Safety No 12/2003/PL-UBTVQH11 was approved
by the Standing Committee of the National Assembly in July 2003. It is aimed at assuring food
85
hygiene and safety in the processes of food production and trade; and preventing and providing
remedy for food poisoning and food-borne diseases in Vietnam. The Ordinance deals with
various aspects of the issue of food safety, which anyway constitutes an essential part of
consumer protection. Most clearly, however, is Article 7, which reads:
“A consumer shall be entitled to information about food hygiene and safety and choice and use of
suitable foods; [consumer] shall be responsible for practicing food hygiene and safety, protecting
him/herself in food consumption and fully complying with guidance on food hygiene and safety;
[consumer shall] voluntarily declare incident of food poisoning and food-borne diseases, if any;
complain, denounce and/or discover any breach of laws and regulations on food hygiene and
safety for the protection of individual and community health.”
The Ordinance also explicitly prohibits inter alia the act of providing untruthful
information, advertisements, labelling or committing other fraudulent acts concerning food
hygiene and safety (Art. 8.7). Breaches of the relevant laws and regulations will be met with
administrative functions or penal liability, liability for damages as prescribed by laws. A State
agency under the Ministry of Health will be assigned by the Government to administer the issue
in Vietnam.
The Ordinance on Goods Quality and the Ordinance on Measurement share similar
features as those of the Ordinance on Food Hygiene and Safety, though they do not mention the
term “consumer” explicitly as the latter Ordinance. Both, however, do confirm the rights of the
consumer to make informed choice on quality products, and to seek redressal for their damages.
Both the two Ordinances uphold that:
“Organisations and individuals shall have the right to lodge their complains and individuals
shall have the right to make denunciations against acts of violating the legislation on goods
quality [legislation on measurement]. Organisations and individuals shall have the right to
propose to the relevant State agencies measures to raise the quality of goods [measures to raise
the efficiency of the measurement activities]. The relevant State agencies shall have to promptly
settle complaints, denunciations and proposals according to the provisions of the law.”
The Ordinance on Measurement strictly prohibits all act of fraudulence in the
measurement activities (Art.4), while the Ordinance on Goods Quality prohibits all acts of
producing and/or trading in goods that fail to ensure the quality prescribed by the law and acts of
giving false information, making untruthful advertisements or committing other fraudulent acts
concerning goods quality (Art.8).
The Ordinance on Prices 2002 also touches upon the issue of consumer interests when it
provides that “The State shall take necessary measures to stabilise prices and to protect the
legitimate rights and interests of manufacturing or business organisations and individuals, and
86
the interests of the consumers and the State” (Section 2 – Art. 2. Principles for administration of
prices).
Another main piece of legislation in which reference is made to unfair trade practices and
to consumers' rights is the Commercial Law passed by the National Assembly on 10 May 1997.
Article 8 of the Law allows traders (being individuals, legal persons (or entities), cooperatives
and family households holding valid business registration certificates) to engage in lawful
competition in conducting their businesses; whereas prohibits such acts as: acts harming
Vietnam’s national interests; speculation for the purpose of manipulating the market; dumping
the prices of goods to prevent competition; defaming other traders; obstructing, enticing, bribing
or threatening the employees and/or customers of other traders; infringing trademark rights and
other industrial (intellectual) property rights of other traders; and other acts of unlawful
competition. Besides, Article 9 of the Law provides that: (i) traders must provide true and
accurate information about the goods and services they supply; (ii) traders must ensure that the
goods they are selling are lawful; (iii) consumers may establish organisations to protect their
legitimate legal rights and, if their rights are violated, may complain to an authorised State body
or take legal proceedings; (iv) traders are prohibited from increasing or reducing prices to cause
damage to producers and consumers, deceiving or misleading customers, selling imitation goods,
selling goods that do not meet the quality and specifications of registered goods by mixing them
with goods that have been registered for their quality; using misleading advertisements; and
conducting unlawful sales promotions.
4.2. The state of consumer welfare and prevalent consumer concerns
Under the centrally planned economic system where the society’s consumption patterns
were decided by the State, goods and services were distributed through a system of rations and
coupons, there was no concept like that of ‘the consumer’, nor any activity to protect consumers.
It was only until after the launching of the Doi Moi process, when the Vietnam economy started
feeling the forces of the market mechanism that emerged the problem of consumers’ interest and
the issue of consumer protection began to take shape. Since then, the body of legal instruments
for protecting consumers’ rights have gradually built up, becoming rather progressive as
compared to other developing countries at the same level of development.
Even though the level of disposable income across the economy, in even in big cities and
commercial centres, remains low compared to other new emerging economies in the regions like
Thailand, Malaysia, etc, and a majority of the population remains poor, the state of welfare in the
country is relatively good. Vietnam's Human Development Index (HDI) in 2004 continues to
improve to 0.691 from 0.686 in the previous year, enabling Vietnam to maintain its medium
87
development ranking of 112 out of 177 countries. The ability
of Vietnam to translate its income into human development
was highlighted: "Countries at the same level of income have
large differences in HDI—Vietnam has roughly the same
income as Pakistan but a much higher HDI, due to its higher
life expectancy and literacy."37 The government has not only
paid attention to protecting the consumers’ legitimate rights
and interests by enabling a fairly good set of legislations and
assigning relevant State agencies to keep a close watch over
issues concerning the consumers; consumer welfare-enhancing
policies have also been a focus in Vietnam. In addition, a
strong consumer movement is in the rising; while the media
has also been very supportive, keeping alert and ready to
denounce any consumer abuse openly.
However, despite all these combined efforts, consumer
abuses are still quite prevalent, especially together with the
development of markets and the increased sophistication of business activities in the country.
One of the fields where unfair trade practices are quite apparent is that of advertisement and
promotion. Such practices as untruthful advertisements, comparative advertisement for one
product by showing that the product in point is superior than ‘others of the same type and price’
in order to mislead the consumers, untruthful promotions, etc prop up almost on a day-to-day
basis, going beyond the control of the relevant authorities (See Box 2). Fore instance, many
consumers in Vietnam complained about their unsatisfactory experiences with a shampoo brand
called CLEAR, which is certified by the ELIDA Institute (Paris-???) to be able to eliminate
dandruffs within 7 times of shampooing, according to the advertisement. There are also many
large promotional programmes with awards for lucky winners amounting up to billions of
Vietnam dong where there was no winner reported, or all big winners turned out not to be in
conformity with the prescribed conditions38.
Box 4.2.1 - Giving promotional cell phones to appropriate consumers’ money?
Anh Tu Co. Ltd is a Vietnamese company specialised in hardware and electronics. Anh Tu
started its ‘special’ promotional programme since the 20th of January 2005. According to the promotional
programme, any customer who made a new purchase at any Anh Tu distributing outlet would be given a
coupon which rewarded a CDMA Morotola C131 mobile phone, provided that the customer agreed to
subscribe for a Free 1 post-paid service package offered by S-Fone, with a subscription charge of
VND200,000 per package.
37
38
See http://www.undp.org.vn/undp/unews/mr/2004/eng/0726a-e.htm for more details.
See http://vnexpress.net/Vietnam/Kinh-doanh/2005/01/3B9DADF3/ for more details.
88
A total of 3,200 customers were cheated by this promotional programme (which made the total
amount of money Anh Tu appropriated amount to VND640mn), not knowing that from the 11th to the 30th
of January, S-Fone – the CDMA network service provider, is giving 01 such mobile phone to any new
user of the Free 1 package free of the VND200,000 subscription charge.
The basic right of the consumers to make informed choice is violated in many cases when
businesses meet in conspiracy to force their products or services on the consumers (See Box 3).
A big case recently is the foreclosure tactics used by giant brewery companies (Tiger, Heineken
and Bivina – a product of the Vietnam Beer Joint Venture Company) to snatch customers from a
new brand – Laser, resulting in an economic case before the Ho Chi Minh City People’s Court,
who decided that a beer shop named “Cay Dua” would not advertise, sell or allow Laser
marketing staff at its site for a specific period; in accordance with an exclusive contract signed
between the shop and the Vietnam Beer Joint-Venture39. While the case was more about
exclusive dealing as an anti-competitive practice, it has another more subtle implication on
consumer welfare: the exclusive contract in point has significantly limited the right to choose
between different products and services of the consumers. The owner of the “Cay Dua” beer
shop made small point in this regard before the court to explain why he wanted to terminate the
contract: many customers would ask for another brand of beer rather than only Tiger, Heineken
and Bivina, whereas the exclusive contract prevented him from providing the customer with
diversified options. Sadly enough, this point was not considered seriously by the court despite
the established presence of the various legislations on consumer protection and the “Cay Dua”
beer shop lost the case, since the court ruled on the basis of the laws on economic contracts, not
competition (which up till now has not been effective) or consumer protection. Laser was
thereafter foreclosed from the market and the consumers were deprived of a new competitive
product.
Box 4.2.2 - Apartment buildings – A monopolistic telecom market
In Hanoi, at present, there are around 45 apartment building projects being undertaken, out of
which 20 have already been completed and put into use. It was, however, reported that in all those
apartment buildings, the consumers do not have choice as regards cable television, internet or telephone
connection. They are forced to use the services provided by only one specific service provider.
Ms. Thu Hoa, who stays at one of the apartment building – KT4-Dinh Cong, said her family was
forced to use the fixed line service provided by the Hanoi Post and the Internet service provided by the
Vietnam Data-communication Company (VDC), even when the service charges are higher than that
offered by other companies. Besides, while cable television is popular all over the city of Hanoi, people
who stay in apartment buildings in Dinh Cong, cannot get the connection by any means.
In the Trung Hoa-Nhan Chinh area, Vietel is the only service provider available to 1,768
apartments. Though the consumers in these apartments were provided with all basic telecom services,
they could not enjoy any new service available in the market until Vietel was able to provide it. Ms.
Thanh Kim, one of the resident in the area, informed that though her family used Internet on a frequent
39
See http://www.cuts-international.org/E-NewsletterVol1.htm#pro for more details on the case.
89
basis to contact family members abroad, they could not get ASDL connection because this service was
not available with Vietel at the time. Therefore, they had to use the dial-up connection, which was
expensive and yet very slow.
Any complaint from the residents in these apartment buildings are met with the same answer
from the Management Board of the buildings: Any service provider who want to do business in these
buildings needs to enter into contracts with the investors from the beginning. After the buildings are put
into use, no service provider can participate in the market any longer.
A Board member of the Hanoi Post said, “We normally start talking to the investors even when
the project is still being drafted. Since providing services in these apartment buildings is a very profitable
business, all telecom providers would want to do business here. To be selected by the investors, the
telecom service providers would have to pay some palm-money.” He also revealed that each telecom
provider would be long-term business relation with one or a number of investing companies so that they
can get hold of service provision contracts whenever there is a new apartment building project; for
example Hanoi Post has a very close business relation with the Housing and Urban Development
Corporation (HUD).
Unfortunately, it is also because of the existence of this type of close relation, the consumers are
the only one to suffer when such relation fails. HUD used to have a contract with the Vietnam Cable
Television Co. to provide cable TV service to apartments in the Dinh Cong area, the Hanoi Cable
Television Co. therefore could not enter the market. However, few years have passed without the cable
connection by the Vietnam Cable Television Co. being installed in the apartment buildings in this area.
The Hanoi Co. later did not want to be involved due to complicated procedures. The apartment residents
in the Dinh Cong area, therefore, were deprived of this basic service involuntarily.
Equally alarming in this regard is the abuse of professional disposition to violate the right
to make informed and voluntary choice of the consumers. Tied selling of uniforms at schools is
so popular a practice that almost nobody would question its legitimacy. Doctors, a profession
most credited with professional ethics, commit abuses in several occasions that the consumers no
longer have faith in them: Hospitals become a nightmare for the people not only because they are
associated with illnesses which might be deadly, but also because they have become exceedingly
expensive – a constraint on the medium-income consumers. Doctors were very often found to
direct the patients to purchase prescribed medicines from the hospital pharmacies, or some
certain pharmacies working in tandem with the hospital, who sell medicines at a much higher
price than usual. Or the doctors might prescribe some expensive types of medicines even if lowcost medicines would be equally effective, because the doctors have received handsome
commissions from big pharma firms to recommend their products. There was even a reported
case in a large State-owned hospital (in Bac Ninh province), where the Board instructed the
doctors to carry out laboratorial tests on every patient, no matter whether such tests were needed
or not, in order to increase the turnover of the hospital40.
Counterfeit goods, fake goods or unsafe and below-standard products, services are
overwhelming the market at the great expenses to the consumers (See Box 4). Vietnam
enterprises very often complained that unfair competition (low-quality, cheap-priced products)
40
See www.vnn.vn/xahoi/doisong/2005/05/422151/ for more details.
90
from Chinese products has been driving them all out of business. The problem with consumer
protection, however, lies in the fact that while the consumers are perfectly satisfied with Chinese
products knowing the expected quality already, provided that the prices are relatively acceptable
and that the products are presented to them as Chinese products; they would be outraged to find
that many Vietnamese business (street hawkers, or small shops) are selling Chinese products at
high price under deception that the products are not made in China. More disturbing is when
products made by reputed Vietnamese enterprises sold at high price are found to be below the
standards expected or claimed. There have been publicised cases of canned foods, produced by
domestic companies like Halong, Sotico, Cholimex, etc, falling short of the weights printed on
their labels; or milk cans, produced by Vietnam Dutch Lady Co. having insecticides’ label.
Box 4.2.3 - Gas cylinder explosion – A consequence of fraudulent marketing schemes
On 23rd May 2005, a big explosion occurred at the apartment No 171/C4, Dai Kim, Hanoi,
resulting in serious burns of the household owner and a property loss estimated at VND300mn (approx.
US$200,000)41. The explosion was caused by gas leaking from a Petrolimex-labelled cylinder in use at
the said apartment. There was no answer from a telephone number scribbled on the sales invoice given to
the family in point by the anonymous cylinder distribution outlet (the owner had absconded). After being
informed, the Petrolimex share holding company had checked their list of distribution outlets but could
not find the telephone number found to have supplied gas cylinder to the 171/C4 apartment. It was found
out later on that though the cylinder had Petrolimex label, the gas inside, valve and pipe were not
produced by the company. The distributor who had supplied gas to the 171/C4 apartment was not an
authorised outlet of Petrolimex, therefore, Petrolimex would not compensate for the damages caused by
the explosion.
In the wake of the scandal, it was revealed that many families are using the same type of gas
cylinder, without knowing the real origins or the distributors’ address. Ms. To Thi Ly, owner of the Shell
Gas authorised distribution outlet at 224 Le Duan Str., Hanoi, said many honest businesses were losing
out to similar frauds, which got customers because of vigorous marketing. The fraudsters would come to
every household and replace the authorised distributors’ cards with their own. They might also act as
insurers checking the safety of the cylinders to deliberately spoil the valve and pipe, then sold a new fake
set to the household at the price of VND40,000-VND45,000 (the normal price is VND8,000-VND10,000
per pipe). They even attracted consumers by gifting them with promotional shampoo or non-sticky
saucepan for cylinder replacement, while indeed the cylinders had been counterfeited with low-quality
gas or valve.
It is felt that consumer protection legislations need to be revised to accommodate the
latest changes in the markets and producers’/traders’ behaviours. Besides, they need to be
strengthened with more teeth to provide the necessary deterrent effects against potential abuses
in the future. The consumers, besides, also need to be properly educated so that they can guard
themselves against these abuses, so as to reduce the burdens on the honest businesses and law
enforcers, as well as to eliminate health risks and any unnecessary loss of property.
41
See http://www.vnexpress.net/Vietnam/Xa-hoi/2005/03/3B9DC765/ for more details.
91
4.3. A hybrid approach between competition and consumer protection
The above discussion on the laws and institutions on consumer protection in Vietnam, as
well as prevalent consumer concerns should be understood in a broader context, where consumer
protection means to include deceptive advertising and promotion, product safety, fraudulent
marketing schemes, food and drug regulation, consumer education, standard setting, and
regulation of professionals, etc. Consumer protection policy, when understood in a more limited
meaning, from competition angle, means to include mainly measures to safeguard the market
against acts and practices by businesses that distort the manner in which consumers make their
decisions in the marketplace, hindering honest/fair competition, in short “unfair competition
practices”. It is also from this angle that competition and consumer protection policy can be
taken as complementary tools to promote consumer welfare and competition at the same time, as
deliberated in the intro of this chapter. This complementarity of the two policy tools would
flourish more; render more benefits to the society, the market when being administered by a
single institution, especially in the case of Vietnam, as would happen when the new Competition
Law 2004 (discussed later) comes into effect in July 2005.
In the first place, performing the consumer protection function can provide useful
insights about how the competition authority should execute competition policy. As in many
cases, which happened in Vietnam until this moment, anti-competitive business strategies
undertaken involved a great deal of advertising and marketing. In the new market economy,
where consumption patterns are no longer decided by the State, advertising and marketing
become principal resorts of enterprises, who may go to the extent of abusing these tools. A sound
understanding of how the consumers have been cheated or misled by unfair advertising or
marketing will provide the competition authority with useful insights into the way the market
operates, on which basis the competition authority can design better competition policies, pass
better rulings. The vigilant consumers will be an enormous source of information, a great friend
of competition. Besides, understanding the consumers’ grieves will also help the competition
officials form better/new remedies, which are more focused on general welfare. As also
mentioned earlier, robust competition is the best way for protecting consumer interests. Rivalry
among incumbent producers, and the threat and fact of entry from new suppliers, fuels the
contest to satisfy consumer needs. In competitive markets, firms prosper by surpassing their
rivals in identifying and serving consumer needs.
In a small economy like Vietnam, many competition abuses might happen in small scale,
which negatively affects the consumers rather than distorting competition. Uniting two functions
in one single institution not only helps to save resources at the central level, it also gives a better
reach and approach to the provincial-level authorities.
92
On the other hand, understanding competition, understanding the way markets work also
has important implications for the design of consumer protection policies. Without a continuing
reminder of the benefits of competition, a consumer protection program might tend to impose
controls that ultimately may diminish the very competition that increases consumer choice in the
longer term. Consumer protection measures – even those motivated by the best of intentions –
without competition knowledge, might become short-sighted and create barriers to entry that
limit the freedom of sellers to provide what consumers demand. Very often consumer activists
would tend to overlook the broader benefits of economic efficiency, of competition to advocate
for a more-than-required consumer protection agenda. Reconciling the two policies in one
institution would help to eliminate this clash of power and interests.
93
Chapter 5
Anticompetitive practices
Anticompetitive practices comprise of a wide range of business practices in which a firm
or group of firms may engage in order to restrict inter-firm competition to maintain or increase
their relative market position and profits without necessarily providing goods and services at a
lower cost or of higher quality. These practices include price fixing and other cartel
arrangements, abuses of a dominant position or monopolisation, mergers and acquisitions
(M&As) that restrict competition and vertical agreements that foreclose markets to new
competitors.
Anticompetitive practices are quite prevalent in Vietnam. Many have been reported by
the local media, though no effort has been made to address them in a systematic manner or in a
single study for common reference. The reportings, however, have generated considerable
attention as well as awareness from the public. Unfortunately, due to the absence of a
competition law until recently in the country, and shortcomings in conceptual understanding of
the issues, those anticompetitive practices have been regulated under many different laws and
regulations and not treated with the just and necessary level of scrutiny. Many cases have
escaped legal punishment by the State, and continue to harm the society as well as the overall
economy.
5.1. Horizontal arrangements
Horizontal arrangements in restraint of competition are concerted actions among entities
in actual or potential competition with one another in the relevant market42. Horizontal
competition restraints have traditionally been considered the most serious of all anticompetitive
practices and constitute that category of violations most susceptible to criminal penalties in many
jurisdictions in the world. The reason for such harsh treatment is plain: Competition law means
to promote a competitive marketplace in which rival firms compete with respect to prices,
products, and services. Any arrangement which runs counter to this axiomatic conduct among
competitive entities is accordingly suspect.
5.1.1. Price fixing
“Price fixing is the term generically applied to a wide variety of concerted actions taken
by competitors having a direct effect on price. The simplest form is an agreement on the price or
prices to be charged on some or all customers. In addition to simple agreements on which price
to charge, the followings are also considered price-fixing:
42
See Part 5.3 for the definition of a relevant market.
94

Agreements on price increase;

Agreements on a standard formula, according to which prices will be computed;

Agreements to maintain a fixed ratio between the prices of competing but nonidentical products;

Agreements to eliminate discounts or to establish uniform discounts;

Agreements on credit term what will be extended to customers;

Agreements to remove products offered at low prices from the market so as to
limit supply and keep prices high;

Agreements not to reduce prices without notifying other cartel members;

Agreements to adhere to published prices;

Agreements not to sell unless agreed on price terms are met; and

Agreements to use a uniform price as starting point for negotiations.
Example 1: The case of taxi companies in Ho Chi Minh city can be taken as a typical example on
agreements to fix uniform tariffs, hurting the consumers.
On 25 March 2000, Sao Viet Cooperative caused a great shock to the 14-member Taxi
Association of Ho Chi Minh City by announcing a new level of tariff - 10000VND for the first two
kilometres and 5000VND for each subsequent kilometre, while other Taxi Association member
companies charged 12000VND for the first two kilometres. At a later internal meeting, another shocking
decision was made by Sao Viet when this company voted for a new tariff of 8000VND for the first two
kilometres and 4500VND for each subsequent kilometre. The success of Sao Viet and the confidence of
people in Sao Viet were proved by the fact that their number of cars increased from less than 100 cars at
the initial stage to 216 cars.
Surprisingly, while trying to reduce the tariff and obviously benefiting the consumers, Sao Viet
faced an unexpectedly severe reaction from the Taxi Association of Ho Chi Minh City. This is because at
the time of the Association’s establishment, before Sao Viet’s price-reducing move, the 14 member
companies in the Taxi Association had agreed to concertedly fix their tariff at 12000VND for the first two
kilometres and 5000VND for each subsequent kilometres. Thus, with the participation of Sao Viet, the
monopoly of the Taxi Association was threatened, hence the strong reaction from the Taxi Association.
Example 2: Since 1990, with the structural reforms undertaken in the financial sector of Vietnam,
joint stock commercial banks, joint venture banks and branches of foreign banks have been allowed to do
business in Vietnam. The stated-owned commercial banks, which altogether possess a market share of
about 75%, however, have tried to maintain their market power through various collusive agreements
among themselves. In particular, they made agreements on setting the lending and borrowing interest
rates in the financial markets.
Price-fixing behaviours will be regulated under Article 13, Clause 2 of the Vietnamese
Competition Law 2004 when the same comes into effect in July 2005.
5.1.2. Market allocating and customer sharing arrangements
“Agreements among competitors dividing markets by territory or by customers are
patently anticompetitive and hence illegal per se. If anything, such arrangements are even more
95
restrictive than the most formal price-fixing agreement, since they leave no room for competition
of any kind.
Thus, competing firms may not divide among themselves the geographical areas in which
they sell, nor may they distribute customers or allocate the available market. All such
understandings, whether direct or indirect, are unlawful.”
This practice is covered under Article 8, Clause 2 of the Vietnamese Competition Law
2004.
5.1.3. Refusal to deal
“Here firms that are at the same level of the production-supply chain enter into agreement
whereby, they agree among themselves not to sell or buy from certain customers. In other words,
they agree to refuse to deal with any third party, normally a competitor of one of them. Though
this may be a fair marketing strategy for optimum profit, sometimes such practices may reduce
competition in the market and consequently could be restrictive in nature."
Example: For a long time, only Vinaphone and Mobiphone were two mobile services providers
in Vietnam. Both these two mobile services providers use the Global System for Mobile Communication
(GMS) technology and share the mobile services market in Vietnam. Competition began with the
participation of three other mobile services providers: SPT, Vietel, and Hanoi Telecom. SPT launched its
S-phone network, using the Code Division Multiple Access (CDMA) technology. The connection
between GMS and CDMA networks is used in many countries. However, for a long time in Vietnam, the
S-phone users cannot send messages to the Vinaphone and Mobiphone users and vice versa. Vinaphone
and Mobiphone quoted many technical pretexts for the problem and the delay in providing
interconnection facilities to the new market players; while the practice was indeed a form of refusal to
deal.
Source: Trinh Thi Thanh Thuy et al, (2004), Scientific Background for Determining the Degree of
Competitive Restrictive Agreements and Exemption Criteria in the Competition Law, Conference Report, MOT,
Research Project 2003-78-009.
This practice is covered under Article 8, Clause 6 of the Vietnamese Competition Law
2004.
5.1.4. Agreement to output restriction
“Under this agreement, firms producing/supplying the same products/services agree to
limit their supplies to a lower proportion of their previous sales. The ultimate objective of
limiting supplies is to create scarcity in the market and subsequently raise prices of
products/services”.
Example 1: In the beginning February 2003, the Vietnam Floating Glass Company (VFG)
decided to break over 1 million m2 of finished glass, explaining this act by the reason that “the supply is
exceeding the demand”.
VFG is a joint venture with a total capital investment of US$126mn between the Japanese Bridge
Building Company (contributing 70% of the total investment) and the Vietnamese Glassware and
Construction Ceramic Corporation (contributing 30%). In mid-1999, VFG came into operation with the
production capacity of 28 million m2 a year. Till 2002, VFG has been a dominant player in the domestic
96
relevant markets with a market share of 60%.
At the time of the incidence mentioned above, as estimated by the Vietnamese Glassware and
Construction Ceramic Corporation, based on the current growth rate of construction, Vietnam still run
short of construction glass. In other words, the supply of construction glass still ran short of the demand.
Thus, the act of breaking up the finished glass by VFG can be regarded as an output restriction behaviour,
which aimed to control the price of this product in the market.
Example 2: In 2003, selling sugar in Vietnam became difficult due to the increased competition
and abundance of choice available in the market. The competition turned stiffer since many sugar mills
decided to sell out all their stock at reduced prices to recover the investment capital. In the face of this
situation, eight (08) sugar enterprises in the Southern part of the country, in a meeting summoned by the
General Director of Bien Hoa Sugar Joint Stock Company, decided to stop selling sugar from 1 June
2003. This agreement caused the increase in price of sugar in the early June 2003.
This behaviour may fall under the consideration of the Article 8, Clause 3 of the
Vietnamese Competition Law 2004.
5.1.5. Bid rigging (or Collusive tendering)
“Bid rigging is an agreement between parties over which competitor will win a tender,
often from government agencies. This agreement may be accomplished by one or more bidder
agreeing to refrain from submitting bids, or by the bidders agreeing on a lower bidder and then
bidding above that firm’s intended (inflated) price. The tendering process is designed to promote
fairness and ensure that the lower possible prices are received. Bid rigging subverts this
competitive process”.
Under the current regulations43, in Vietnam contractors are selected in one of the 7 following
methods: (1) Open tendering; (2) limited tendering; (3) direct appointment; (4) competitive
offering; (5) direct procurement; (6) self-implementing; (7) special procurement. Only the first
three forms to some extent are of competitive significance. Indeed, only the method of open
tendering can be considered as a fair and transparent competition. The last 4 tendering methods
can be referred to as the direct appointment, because the winning contractors are designated
before the bids are considered. The following table can show how the tendering methods are
carried out in the period 1998-2002.
1998
1999
2000
2001
Open
1222
26.77
1887
19.6
1302
12.9
4277
Limited
1536
33.5
2947
30.6
2600
25.5
6081
Direct appointment and other
1819
39.8
4789
49.8
6277
61.7
18181
43
Total
4577
100
9623
100
10179
100
28539
CIEM (2003), Tendering management: The status and measures for improving the efficiency of the investment
projects and of public procurement in Vietnam, A ministerial research project, headed by Dr. Ngo Minh Hai.
97
14.98
4377
2002
14.23
21.32
6015
19.55
63.70
20376
66.22
100
30768
100
Example: While investigating 3 tendering packages (5, 6, and 7) of the transportation project for
improving and upgrading the National Road 27B at the tender organised on 10 December 2001 by the
Transportation Management Unit (TMU) of Ninh Thuan province, many mistakes and unusual things
were discovered in all phases: tender planning, assessment of tendering files, and approval of tender
results. It was “unusual” because the Ninh Thuan TMU gave too much favour to two (02) bidders: Hai
Thanh Limited Company and Hiep Khanh Building Construction Enterprise, although Ninh Thuan TMU
knew that the capacity of both bidders didn’t meet the requirements set for these tendering packages by
the Ministry of Transportation.
Instead of being rejected immediately, these two bidders were selected and awarded as the
winners. Immediately after being awarded as the winner, Hai Thanh Limited Company signed a contract
with the Transportation Company 610 and handed over the whole construction work of road (from 44+00
km to 49+00 km) to the Transportation Company 610 at the estimated cost of more than VND6.1bn, in
comparison to the total value of this tendering package of VND12.88bn. Indeed, the wining bidder had to
sub-contract the tender package to another party. And in this case it was not possible for Hai Thanh
Limited Company to carry out the construction work because the “capacity” of this company could not go
beyond the sale of building materials.
The situation was no better for the Management Unit of Rural Transportation Project in Ninh
Thuan. The open tendering procedures for some construction works were formalistic in nature. Bid
rigging became popular in all phases. Specifically, in the first year of the WB2 Project (in 2000), bid
rigging was found in all 14 tendering packages. Of which, 13 tendering packages were found to have the
same construction method.
Bid rigging was found not only in the Rural Transportation Project WB2, but also in other
projects funded by the State budget. For instance, in Van Lam-Son Hai 2 road construction project, there
were four (04) companies participating in the tendering process. Company 98 was selected and awarded
as winner. The interesting aspect of the story, however, was that all the four participants in the tendering
process were the same, in the sense that three other companies were used by Company 98 to participate in
‘tendering’ just to create a ‘competitive’ image for the whole episode. These three ‘ghost’ companies
offered the prices higher than the price of the tendering package and ‘accepted’ being losers so that
Company 98 could be awarded as a winner. Having arranged ‘in advance’, Company 98 was awarded as
winner at the price of VND1.5609bn as compared to the price of VND1560900141 of the tendering
package, which was less than by only 141 VND.
Source: “Tendering in Construction: Real Competition or not?” - Ninh Thuan Newspaper, 17/12/2002.
This practice is regulated under Article 8, Clause 8 of the Vietnamese Competition Law
2004.
5.2. Vertical arrangements
Vertical arrangements involve businesses at different levels of the supply/distribution
chain in one industry. Simply put, in a vertical arrangement, for example bilateral, one party is
the supplier of inputs to the other party’s business activity. Vertical arrangements, not being
among direct competitors, are, generally speaking, treated less severely than horizontal restraints
although, to be sure, certain vertical restraints have been uniformly condemned.
98
5.2.1. Tied selling
“Tied selling means forcing customers to buy other products along with the desired
product. Here the supplier sells a product (tying product), which is dependent on the purchase of
some other product, usually a slowing product (tied product). This tie-in arrangement is such that
even if the customer does not want to buy the tied product, he has to buy it in order to get the
desired product.
However, such behaviour should not be considered abusive if the firm does not have
market power in the tying goods”.
Example 1: In 2002, when the demand on the motorcycle labelled "Wave @" in Vietnam was
high, tied selling occurred in many shops in such way that the motorcycle was sold tied with a helmet. In
many cases, especially under the centrally planned economic mechanism, when the supply usually fell
short of the demand, tied selling practice was very popular.
Sources: http://vnexpress.net/Vietnam/Kinh-doanh/2002/02/3B9B9479/
Example 2: In mid-March 2004, the Informatics and Telecom Company in Ho Chi Minh City
(NetSoft) forced all of its agents in HCM City to sign contracts under the conditions that each Internet
agent must register for selling pre-paid Internet cards in addition to other services that they wish to
register; and the revenue for selling such cards must reach at least VND400000 per month.
Source: Trinh Thi Thanh Thuy et al, (2004), Scientific Background for Determining the Degree of
Competitive Restrictive Agreements and Exemption Criteria in the Competition Law, Conference Report, MOT,
Research Project 2003-78-009.
The ‘tied selling’ behaviour is currently not regulated by the Vietnamese Competition
Law 2004.
5.2.2. Exclusive Dealing
“Exclusive dealing is the practice, whereby a manufacturer or supplier of goods restrains
his distributors from dealing in competing products and requires them to deal exclusively in the
products manufactured and supplied by him. This dealing arrangement can act as a barrier for
new entrants and hence affects competition adversely”.
Example 1: Promotional Strategy Foreclosed New Entrant - Laser, the first Vietnamese brand
of bottled draught beer, was foreclosed by ‘big brothers’ in the international beer industry from its own
national market.
Tran Qui Thanh, President of the Executive Board of the Tan Hiep Phat Corp., appealed to
relevant State agencies and government officials in a meeting held on April 7th 2004 that Laser beer, their
new product, could not access retail shops, distribution agencies and bars, etc due to pressure from
foreign beer brand-holders who were dominating the Vietnam beer market. Thanh quoted beer brands like
Tiger, Heineken and Bivina (produced by the Vietnam Beer Joint-Venture) as direct rivals of Laser.
Owners of retail shops, distribution agencies and bars said they “dare not” sell or distribute Laser
beer, or even have Laser advertisement boards hang at their places. The aforementioned beer producing
joint-ventures reportedly forced distribution agencies, retail shops and bars to sign a contract with them,
which included an exclusive term preventing these sellers and distributors from selling, exhibiting,
introducing, marketing… or even allowing marketing staff of any other beer brands to work on their
business sites.
99
As compensation, these shops and distributors would receive a ‘sponsor’ amount between VND50mn
(US$3174) and some VND100mn (US$6349) per annum. This strategy had enabled these beer brands to
effectively prevent any promotional campaigns of Laser anywhere in Vietnam, from metropolitan cities to
provincial areas. Right after its introduction onto the market with a promotional program named “The
week of Laser beer”, which entitled customers at restaurants and bars in Ho Chi Minh City to drink Laser
beer free of charge; Laser was so heavily pressured by big players on the beer market that no restaurants
or bars dared to sell it any longer.
To make matter worse, as a warning signal, just "This is an anticompetitive practice
recently, a beer shop has been brought to court by one of which is aimed at preventing any
those big beer producers due to so-called ‘impeachment of newcomers from getting access to the
economic contract’.
distribution channels and hence
The decision of the Ho Chi Minh City People’s Court customers, which will definitely result
was that the beer shop “Cay Dua” was not permitted to in those newcomers not being able to
advertise, sell or allow Laser marketing staff at their site until develop their brands and quitting the
November 2004; in accordance with the contract signed market even before real competition
between the shop and the Vietnam Beer Joint-Venture since starts", said Tran Qui Thanh, President
of the Executive Board of the Tan Hiep
November 2003.
Lawyers representing “Cay Dua” and Tan Hiep Phat Phat Corp.
Corp. argued that the contract was not an economic contract, but simply a sponsor or site leasing contract;
and that the contract did not entitle fair rights and obligations to both signatory parties but was in favour
of Vietnam Beer JV. The court, rejecting all these arguments, said the signatory conditions as well as
substantive provisions of the contract were in compliance with relevant laws and regulations; hence the
contract was legitimate, effective and must be respected.
Though analysts opined that the terms of the contract were an abuse of dominance by Vietnam
Beer JV to compete unfairly and maintain its dominant position by unjust practice, the contract was able
to escape the scrutiny of the law, as Vietnam was yet to have a Competition Law at the time, while the
current Commercial Law and the State Ordnance on Economic Contracts did not cover these areas.
(VietnamNet 04.07.2004 & 18.05.04)
Example 2: In recent years, before each academic year, by the agreements between Bao Viet and
with Provincial Departments of Education, or even with the Ministry of Training and Education, every
primary and secondary schools have been proposed to buy the life insurance from Bao Viet only.
Particularly, the Kien Giang’s Life Insurance Company sent an official letter to the Kien Giang’s Party
Committee with the proposal that all officials, including the retired, would not deal with foreign insurance
companies. Subsequently, many other provinces had also followed this behaviour.
This practice is mentioned in Article 13, Clause 5 of the Vietnamese Competition Law
2004.
5.2.3. Resale price maintenance
“Here the producer dictates the resale price of goods that would be charged by the
retailers. Sometimes price floors and ceilings are imposed. When resale price maintenance is
imposed, the price of goods becomes uniform at all points of resale irrespective of the difference
in location, character and quality of the services provided. This practice, however, need not
always be anticompetitive”.
While price floors and ceilings are still widely used in Vietnam, the above-mentioned
behaviour is still not regulated by any law, including the Competition Law 2004.
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5.3. Abuse of dominance and other structural offences - competitionrestricting mergers and acquisitions (M&As)
5.3.1. Price Discrimination
“When a manufacture or a supplier of goods charge, for the same or similar product, a
higher price from one dealer and a lower price from another, the practice is referred to as price
discrimination. The discrimination in price can be made either through fixing or charging
different prices from different buyers or classes of buyers or by granting discount, commission,
allowance or rebate at different rate to different buyers or class of buyers”. Price discrimination
can only be effectively exerted by businesses only when they are in dominant positions or have
considerable market power in the relevant product or geographical markets; thus it is considered
a type of abuse of dominance.
The dual price system and the discrimination in land-use rights and taxation and in the
access to credit between domestic and foreign enterprises can be taken as the examples of price
discrimination. However, this behaviour is still not regulated in the Competition Law 2004 of
Vietnam.
5.3.2. Predatory pricing
“Predatory pricing is pricing of the product below the cost of production with the
intention to drive out competitors from the market. Predatory pricing is something difficult to
prove against any firm”.
Example: The Beverage Coca-Cola Company and the International Beverage Company IBC
(with Pepsi as a major product) together possess 70-80% of the total market share of beverage products.
Using their dominant position as leverage, in 1998, these companies reduced the prices of their products
substantially (from VND26000 to VND17000 per box) to wipe out all other competing soft drinks in the
market. When all other beverage producers were driven out of the market, these companies again
increased the prices of their products. For instance, the price of Coca-cola was increased to VND46000
per box).
Source: Trinh Thi Thanh Thuy et al, (2004), Scientific Background for Determining the Degree of
Competitive Restrictive Agreements and Exemption Criteria in the Competition Law, Conference Report, MOT,
Research Project 2003-78-009.
This behaviour may fall under the consideration of the Article 13, Clause 1 of the
Vietnamese Competition Law 2004.
5.3.3. Competition-restricting mergers and acquisitions
The problems that have been dealt with thus far concern what may be deemed
behavioural offences -- certain types of anticompetitive conduct, which competition laws forbid.
Competition, however, is also concerned with market structure, and it prohibits structural
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phenomena likely to substantially lessen competition or likely to amount to monopolisation.
Competition law and policy is premised on the belief that a competitive economy can best be
achieved by maintaining markets with a significant number of sellers. Hence, to a considerable
extent, the structural aspect of the law focuses on avoiding or remedying the concentration of
market power in a few firms with large market shares. Several economic concentration activities
of firms such as mergers, consolidation, acquisitions of enterprises, joint ventures between
enterprises, and so on, fall under this category of competition offences. These merger and
acquisition activities (M&As) of firms will require the scrutiny of competition authorities if they
result in high concentration in the relevant markets and are likely to restrict competition in the
relevant markets.
The concept of ‘relevant markets’ refers to the line of commerce in which competition
has been restrained and to the geographic area involved, defined to include all reasonably
substitutable products or services, and all nearby competitors, to which consumers could turn in
the near term if the restraint or abuse raised prices by a not insignificant amount 44. In simple
terms, relevant market identifies the particular product/service or class of products produced or
services rendered by an enterprise(s) in a given geographic area. Identification also includes
identification of enterprises that compete to supply those products or services.
A relevant market has therefore two fundamental dimensions, product and geographic.
The product market describes the good or service. The geographic market describes the locations
of the producers or sellers of the product or service. Relevant market is defined by consumer or
purchaser preferences and actions. For instance, if purchasers consider two goods to be close
substitutes or readily interchangeable, those two goods are considered to be in the same relevant
market. As an illustration, butter and margarine can be considered to be in the same relevant
market. In contrast, even if producers/sellers consider two goods to be very similar on the
ground that they are manufactured on the same machines, the goods may not be in the same
relevant market.
As an illustration even if 13–inch automobile tyres and 14–inch automobile
tyres are made on the same machine, purchasers do not substitute between 13-inch and 14-inch
tyres and thus the two sizes are in two different relevant markets.
In sum, relevant market means the market determinable with reference to the relevant
product market or the relevant geographic market or with reference to both the markets.
44
UNCTAD (1994), Continued Work on the Elaboration of a Model Law or Laws on Restrictive Business Practices,
TD/B/RBP/81/Rev.3 – Geneva
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According to the Vietnam Competition Law 2004, economic concentration activities
shall be prohibited if the combined market shares45 of enterprises participating in economic
concentration account for over 50% on the relevant market46, except for the following cases47:
(i)
One or more of the participants in economic concentration is/are in danger of
dissolution or bankruptcy48;
(ii)
The economic concentration case has an effect of expanding export or
contributing to socio-economic development, technical and technological
advance.
(iii)
Enterprises, after undertaking economic concentration, are still of small or
medium size as prescribed by Vietnam law49.
As mentioned in the preceding chapters, in Vietnam, there are several giant State-owned
enterprises - GC90 and GC91 – which were established by the State’s administrative decisions.
These GCs more than often have an average market share of above 75%. It is not clear whether
GCs should fall under the regulation of the Competition Law 2004 of Vietnam or not, though
GCs, understood as SOEs, pursuant to Article 2 of the Law, should be subject to the application
of this Law.
45
According to Clause 5, Article 3 of the Competition Law 2004, an enterprise's market share of a certain kind of
goods or service means the percentage between sale turnover of this enterprise and aggregate turnover of all
enterprises dealing in such kind of goods or service on the relevant market or the percentage between purchase
turnover of this enterprise and aggregate purchase turnover of all enterprises dealing in such kind of goods or service
on the relevant market on a monthly, quarterly or yearly basis.
46
See Article 18 of the Vietnam Competition Law 2004
47
See Article 19 of the Vietnam Competition Law 2004
48
According to the Bankruptcy Law 2004 of Vietnam, any business, which is unable to pay its due debts on demand
by a creditor, shall be deemed to have become insolvent.
49
The Government of Vietnam provides a formal definition of small and medium-sized enterprises (SMEs) in 2001
in the Decree No.91/2001/CP-ND. According to this decree, SMEs ‘are independent business entities, which have
registered their business in accordance with prevailing laws, with registered capital of not more than VND10bn
(approx. US$637,000) or the annual average number of labour of not more than 300 people.’ The decree
encompasses enterprises registered under the Enterprise Law, State-owned Enterprise Law, cooperatives registered
under the Cooperative Laws and household businesses if they meet these requirements.
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Chapter 6
Perspectives on Competition Policy
The effectiveness of any law in a country depends on the extent to which the law has
actually evolved in the country in tandem with socio-economic and historical developments in
the country. It is necessary that there be some amount of acceptability and ownership of the law
among the stakeholders. This is possible only if their expectations are taken into consideration
while the law is being adopted, or even during the implementation process of the law50.
These were the reasons why it was decided that a questionnaire survey should be
undertaken within the framework of this particular project for each project country, in order to
take stock of the existent regulatory framework therein, capture the expectations of the national
stakeholders, as well as collect more first-hand information about anticompetitive practices in the
project countries. This part presents the findings of the said questionnaire survey in Vietnam.
6.1. Backgrounds and Methodology
Target Sample
The survey targets three types of stakeholders: individual consumers, enterprises and
officials. The individual consumers here are defined as persons who answer the interview
questions from the consumer perspectives rather than from their employment positions. In other
words, the individual consumers are expected to response to the questions on the basis of their
understanding elements affecting the their own buying decisions on consumer goods. Enterprises
are defined any institutions engaging in doing business and their answering to the questions is
based on the institution or business activities’ perspectives. Officials are people who working in
the State sector and their daily works directly or indirectly related to competition issues.
However, the borderline between three types of elementary units of the sample are not entirely
clear as it is likely that surveyed person can answer the questions from both enterprise or official
and consumer perspectives. In order to mitigate this overlap, the questions were designed quite
differently among three types of populations.
Data Collection and Quality Control
The data was collected through face-to-face interviews and filled questionnaires sent
back by respondents. For the individual consumers, face-to-face interviewing was the main
method used to collect data, while for the enterprises and some officials, filled questionnaires
were used to some extent.
50
CUTS, Methodology (Survey Component) for Country Report, 7Up2 Project, 2004
104
In order to control the quality, the interveners are trained to understand the questions
clearly as well as several competition-related concepts therein. Controlling the quality of
individual customers’ filled questionnaires was undertaken during the interviewing process by
the interviewers. The enterprises and officials whose opinions were collected through the filled
questionnaires and misunderstood the questions were re-contacted.
In addition to the surveys, the data was also collected from the press and other reliable
research and surveys.
Sample Design
Because of limited manpower and time constraints, the survey was conducted only in the
Hanoi area. Therefore, the extrapolation of the survey results should be cautious. The enterprises
are selected randomly from the list of enterprises in the Business Directory 2003 published by
the Vietnam Chamber Commercial and Industry. Officials are selected from CIEM’s database on
the basis of the relevance of the areas of work to competition issues. The individual consumers
are selected ‘straight’ people on the street.
The number of enterprises and individual consumers engaged in the surveys were 50
each. For the officials, opinions from 20 experts were collected.
Survey Instruments
The survey was conducted on the basis of prepared questionnaires. As mentioned above,
in order to differentiate the views of enterprises, individual consumers, and officials; three types
of questionnaires were designed separately to cater to the specific characteristics of these three
groups of interviewees. All three types of questionnaires are open questions and cover the issues
as market prices, understandings of Competition Law and other competition legislation and
policies. Additionally, the questionnaires for enterprises and individual consumers consist of
other issues tied selling, unfair advertisements, business or consumer association, counterfeit
products. The questionnaire for enterprises also include the business issues as such obstacles in
doing business, bidding collusion. The results are presented below, from a qualitative perspective
rather than a quantitative, due to the small size of the sample.
6.2. Survey Results
As mentioned above, many concepts pertaining to the issue of competition policy and law
are new to a transition economy like Vietnam, where for a very long time; ‘competition’ was
suppressed as ‘capitalistic element’. This is despite the fact that the questionnaires were made in
Vietnamese and the direct interviews were carried out in Vietnamese. Many respondents, for
example, were confusing the concept of “predatory pricing” with the concept of “dumping”, or
were of the view that price-fixing or market-sharing is not anticompetitive practice since they
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have been used in Vietnam since the early days of rebuilding the national economy after the
wars. In general, the majority of respondents showed concerns over the existence, and in quite a
few cases the prevalence, of unfair competition practices in many industries and business sectors.
Many pointed out that a level playing field for all is only on paper. The respondents also
confirmed the prevalence of anticompetitive practices in Vietnam. Many respondents, especially
the enterprises and consumers, could say about the existence of these anticompetitive practices.
To some extent they felt the harmful effects of these anti-competitive practices on their own
interests, but they didn’t know how to assess or how to measure the harmful effects of these
behaviours. In some cases, many customers could name the anti-competitive practices, but they
could not describe them in detail51. A majority of respondents, especially the officials and
enterprises, said that competition policy and law alone could not solve the unfair aspects in
Doing business in Vietnam.
6.3. Main survey findings
6.3.1. Findings about the prevalence of anti-competitive practices in Vietnam
Prices
The questions on the pricing situation were raised to all types of interviewees but with
different focus. For enterprises, the questions mainly relate to the prices of production inputs,
including utilities, raw materials, and equipments, and price competition among enterprises.
Pricing questions for the officials were put in the broader macroeconomic situation and not
applied to specific products. For consumers, the questions focused on consumers’ opinions on
how high the market price are.
Almost all enterprises (92%) said that prices of utilities inputs such as electricity,
telecommunication services, and transportation strongly affected their production costs; while
only a small proportion thought that these input prices had moderate (6%) and weak (2%)
impacts on their costs. This implies that reduction in the utilities prices will significantly
decrease the enterprises’ production costs.
Eighty two (82) percent of enterprises said they had to accept higher prices of raw
materials and equipments in recent years. A high proportion of raw materials and equipments are
imported ones and, therefore, their prices are strongly affected by the world prices.
51
For example, in the case of tied selling, many respondents were able to name such cases as the school uniform
dress and textbook. Some parents complained that they have to buy the school uniform dress or textbook for their
younger children, even they didn’t need because their older children could leave these things to their younger. Some
customers want to drink to the frozen bottled Hanoi beer, but if they want to drink the frozen beer, they should buy
the brand.
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Pricing decisions made by enterprises are based on production costs (98% of surveyed
enterprises), market competition (90%) and, at much less extent, on regulation (3%). These
results suggest that almost all surveyed enterprises have autonomy to make pricing decision. The
problem of aggressive competition through below-cost prices (‘predatory pricing’) was faced by
not many enterprises (10%) but had strong impact on the affected companies’ business activities
in terms of reduced market shares and consequently low profits.
Enterprises claimed that their business difficulties were caused by prices due to several
reasons: existence of monopoly in some public utilities (88% of enterprises); lack of competition
regulation and poor implementation of current competition legislation (64%); strong price
fluctuations in the world markets (48%).
A large portion of surveyed officials (84%) was of the view that, as a result of price
liberalisation since 1989, prices of most goods and services are determined by the markets rather
than administrative decisions. As price competition became a common incidence in Vietnam, the
prices of goods and services are more closely related to the production costs. All surveyed
officials share the view that some goods and services are overpriced, especially in comparison
with the regional countries.
Almost (90%) officials said that the quality of public utilities (electricity, telecom
services, transportation. etc) have been improved in recent years because of huge investment and
the introduction of competition into these network industries. The officials also reminded as a
fact that the prices of electricity, waters, postal, railways, and airways had been increased while
telecom tariffs gradually declined.
The officials indicated various reasons behind unreasonably high prices, which can be
divided into the following groups:

High tariffs imposed on the imported goods. High tariff barriers are used in
Vietnam for various reasons, such as (i) protection of domestic production (fertilizers,
sugar, cements, steels, electronics, etc); and (ii) consumption discouragement
(automobiles, cosmetics, etc).

Price cross-subsidy policies. High pries are imposed on the high demanded
products in order to subsidy the below-cost prices charged on the products sold in some
special locations or groups of people (e.g. high mobile and international call tariffs for
subsidising the local fixed lines to achieve the goal of universal service).

Monopoly. Monopoly occurs not only in the production stage but also in the
distribution system. The case of medicines is an obvious example of how monopolistic
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power in the distribution channels for medicines adversely affect prices in the markets52.
Similar situation also happen in the cement, steel sectors, etc.

Speculation.

Temporary shortage of supply due to various reasons.
In response to the question of the government pricing policy, the surveyed officials
express their views on the basic elements of the pricing policy. Three price determination
principles mentioned by the officials are: (i) market oriented (90% of officials); (ii) cost-based
(95%), and (iii) non-discrimination among different economic ownership sectors (95%). A
majority of officials (85%) argue that the price subsidisation policy should be gradually
eliminated, and a lower percentage (70%) thought that the cross-subsidy policy should be only
applied in very few industries (telecom) and for a limited time period. All officials agreed on the
importance of government’s role in price stabilisation and mention about the efficiency of this
type of government intervention. A high percentage of responded officials (70%) think the
government should stabilise the prices of very sensitive products that are major inputs for many
industries and only intervene when there is large fluctuations in these prices.
According to the surveyed officials, the price policies should aim at such as objectives as:
(i)
creating foundations for competition in some recently monopolised industries;
(ii)
facilitating the transformation of state owned enterprises to the profit-motivated
enterprises;
(iii)
creating the equal playing field for enterprises from all different economic
ownership sectors; and
(iv)
accelerating the Vietnamese international economic integration process.
In order to achieve these objectives, they recommended that the government pricing
policy should:
(i)
reduce and eliminate subsidies through prices;
(ii)
provide enterprises more autonomy in determining prices of some products which
are currently under price control.
The consumers’ perspectives on prices are more diversified. In comparison with general
income level and production costs, 22% of individuals saw prices of many goods and services as
too high, while 84% of them thought that only some types of goods and services were
overpriced. Compared with imported goods, 92% of consumers thought that domestic goods and
For more details, see CUTS 7Up2 E-News Vol II, “Rising drug prices left consumers reeling – Who to blame?” at
http://www.cuts-international.org/7up2E-newsletter2-2.htm#v1
52
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services are better priced (lower) than imported goods. A large proportion of consumers (76%)
thought that most of goods and services were priced reasonably.
Furthermore, 78% of consumers surveyed saw no major price difference among different
trademarks for the similar goods. The consumers also indicated the main reasons behind the very
high prices of some goods and services, such as:
(i)
high tariff rates imposed on imported goods (electronics, automobiles,
cosmetics, etc);
(ii)
monopoly (telecom services, electricity),
(iii)
flawed distribution system, giving space to monopolistic and collusive
behaviours to thrive (medicine, cement, steel, etc);
(iv)
unregulated price quoting system;
(v)
culture of bargaining;
(vi)
trading facilities;
(vii)
competition from low-priced counterfeit goods.
Tied Selling
Tied sale is not a common practice according to the enterprises and consumers surveyed.
Only few of them face tied sale in some special situations such as in school books, school
uniform or beer sold in restaurants.
Exclusive Dealings
No surveyed enterprises reported that they faced any exclusive dealing practice in their
daily business. However, in fact, exclusive dealing practices are much involved in corruption
cases. For some very profitable contracts, especially ones funded by the state, it is not easy for all
enterprises to participate because of lack of information or other ‘artificial’ barriers.
Unfair Advertisement
In Vietnam there are certain regulations regarding commercial advertisements. However,
the regulations on the contents of advertisement mainly deal with preventing advertising contents
that are harmful or contradictory to the national culture values. The unfair competition contents
of advertisements have not been treated with justice. As a result, a high percentage of surveyed
enterprises (90%) reported that they face unfair advertising practices. The most common unfair
practice is that many advertisements still contain the direct or indirect comparison information
with its rivals (comparative advertisement).
Many responded consumers (54%) said that advertisement provided them with
information for making purchase decisions. However, they did not believe totally in what were
advertised. As almost all impressive advertisements are made by the well-known enterprises or
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brands, in fact, there were no serious problems caused by the misleading advertisements (though
this practice was acknowledged to have happened). The problems mainly arose from sale
promotional schemes with bonus. The main reasons behind these problems were the unclear or
misleading statement of the criteria, procedures for bonus.
Bidding Collusion
Bidding collusion is a sensitive question; therefore, the response to this question is low.
However, from the unofficial sources, many collusive bidding practices were undertaken during
the bidding process for several State-funded projects. The bidders make arrangements for one of
them to be a winner. Bidding collusion also occurred because of the involvement of some
enterprises in the same ministries into the bidding process or the bidders were strongly
influenced by several persons.
Collusive agreements in associations
A high proportion of surveyed enterprises (70%) are members of professional or
industrial associations. The main functions of these associations are to provide members with
information, mainly the economic policies, and a forum to express their views on the government
policies. None of surveyed enterprises said that their associations made any concerted
arrangements on prices or markets/customers. However, from other information sources, some
associations did make decisions on prices (for example the taxi association in the past). Some
enterprises reported that their associations provided information on prices and market
development. A moderate percentage of enterprises (34%) felt to have been treated with
discrimination in their associations, especially as regard access to sensitive information.
Only some consumers (20% of surveyed consumers) knew about the existence and
operations of any consumer association. The consumers relied on their own measures rather than
on consumer associations to solve problems in buying products, or seeking redressal. The
regulations protecting the consumers’ interests were thought to be rather inadequate and there
was a lack of effective mechanism to solve the consumers’ enquiries.
Difficulties in Doing Business
One question designed particularly to the enterprise interviewees is the difficulties caused
by unfair competition practices that enterprises faced since they started their business. The
enterprises were asked whether they had any of the four following difficulties as:
(i)
not getting access to customers and distribution system;
(ii)
deals being refused without appropriate reasons;
(iii)
competition from the low-priced goods, and
(iv)
pressure from big or dominant companies.
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Most of enterprises (96%) have established their own distribution system for selling their
products. One of the major problems was the enterprises’ capacity to control their distribution
channel at the lower level. Consequently, they could not control and ensure the sale
representatives sold the authentic products with the enterprises’ controlled prices.
Explicitly, few enterprises (10%) are refused to engage in certain business. However,
implicitly this situation happened quite a lot, especially in the very profitable business areas. To
remove this problem, many enterprises required publicising the information and State clear
criteria for doing business.
Competing with imported goods, especially very low-priced goods from China, was
problematic to 20% of the surveyed enterprises. However, other source of information suggested
that presently many domestic goods could compete successful with Chinese products in
Vietnam. The prices of domestic product in many cases are higher than the Chinese ones but the
domestic are still favoured because of their higher quality. Competition against low-priced
products remained a serious problem in the low-income segment of the society.
Only 20% of surveyed non-State enterprises said that they are adversely affected by the
operations of large State-owned enterprises and foreign invested enterprises in their business
area. In fact, the private enterprises felt that it was very hard to compete with the state owned
enterprises, which were usually in a more advantaged position in the same market.
6.3.2. Findings about the need for competition policy and law in Vietnam
Understanding of the Competition Law
All surveyed officials, almost all of the surveyed enterprises (98%), and a moderate
proportion of consumers (62%) knew about the existence of newly passed Competition Law
2004 of Vietnam. Furthermore, all officials, 90% of enterprises and 60% of consumers
interviewed appreciated the new Competition Law as a very important legislation for economic
development and consumer welfare. The remaining percentages regarded the Law as important.
The importance of the new Competition Law were valued by all surveyed enterprises and
officials from different aspects. Firstly, the Competition Law was said to be necessary because:
(i)
It provides the most basic and important principles to regulate the market
economy;
(ii)
It meets the need of controlling monopoly, especially in the context of
international economic integration;
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(iii)
It meets the need of creating and maintaining the equal business environment
among all types of enterprises;
(iv)
It prevents anticompetitive practices, especially the “big fishes eat small fishes”
situation.
Secondly, the main contents of the Law was said to show its own importance because:
(i)
It ensures and encourages competition among enterprises within a common
regulatory framework;
(ii)
It controls the process of creating market dominant and monopolistic positions;
(iii)
It prevents practices that restrict competition as well as anti-competition
practices.
However, in general, many interviewees do not know the Competition Law in details as
reflected in the very response rate to each question concerning the specific contents of the
Competition Law. Therefore, more attention should be paid on the content of answers than its
statistical importance.
Regarding the desired impacts of the new Competition Law, consumers hoped that the
Law would solve the problems of unfair competition, monopoly and, especially, provided
effective mechanism to protect the interests of individual consumers and prevent counterfeit
products.
Generally, almost enterprises (96%) expressed high expectations on the Competition
Law. They expected that the Law would promote fair competition among enterprises from
different economic ownership sectors within the same industries. These enterprises also
expressed support to the fact that the Law provided regulations prohibiting the abuses of
dominant and monopolistic positions. According to their views, such regulation is the most
important one and has been awaited for long time.
The officials with more understanding of the Law have give more expected results of the
implementation of the Competition Law, such as the followings:
(i)
providing measures against the unfair competition conducts;
(ii)
providing measures to control monopolies;
(iii)
creating an equal playing field for all various economic ownership sectors;
(iv)
protecting the interests of consumers
According to high-ranking officials, who are directly in charge of the Competition Law,
the Competition Law would create new challenges to enterprises because:
(i)
It exerts pressures on enterprises to have more healthy and strategic
competitive practices and there is no room for grapping behaviour;
112
(ii)
The large-size enterprises will be more careful in making the business decision
as their decisions would significantly impact the market situation and are
strictly controlled by authorities;
(iii)
The enterprises will be challenged by the severe penalties stated in the Law,
which are first reference to the competition matters;
(iv)
The state owned enterprises in the state monopoly sectors should also be
careful, as the Law will be applied to some extent in these sectors.
The interviewees were also asked to make some recommendation for implementation of
the Competition Law. These recommendations are mainly from the enterprises and officials and
emphasised on the Competition Authority and the unfair competition practices mentioned in the
Competition Law.
Regarding the Competition Authority, the opinions focused on two aspects: the
administrative level of authority and the functions. The basic arguments for considering the
administrative level of the Competition Authority are mainly its independence and feasibility (in
terms of current administrative reforms, the operation cost, and the real situation in Vietnam).
Viewpoints on this issue can be divided into three groups:
(i)
The Competition Authority is set up at ministerial level and is under the
Government (mainly for reasons of independence and objectivity of decisions);
(ii)
The Competition Authority is set up as an inter-ministerial committee with
representatives from relevant ministries appointed by the Prime Minister;
(iii)
The Competition Authority is set up as a part of Ministry of Trade with special
regulations to ensure its independence and objectivity (to reduce operational
cost and to increase the feasibility).
Despite this difference in viewpoints, there was a common understanding that the
Competition Authority being set up at the ministerial level would ensure its independence most
and should be followed in the long run.
Two major functions were raised as those to be taken by the Competition Authority:
investigative and adjudicative. The interviewees were of the opinions that (i) the Competition
Authority should take both investigative and adjudicative functions; or (ii) the Competition
Authority should take only the investigative function and leave the adjudicative function to the
courts. Additionally, the interviewees thought that Competition Authority should play a
significant role in protecting consumers. Therefore, within its organisational structure, there
should be units being responsible for collecting the opinions and information from individual
consumers and investigating consumer complaints.
113
Understanding of the other policies and legislations relevant to competition
The following policies are normally claimed to be restricting competition in the markets:
(i)
Industrial policies protecting domestic industries;
(ii)
High tariff rates for some imported products;
(iii)
Licensing policies without sound reasons; and
(iv)
Unclear conditions for entering some markets.
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Chapter 7
The Competition Law of Vietnam
The Law on Competition was passed in November 2004 after a laborious drafting process
(04 years, 15 drafts), with reference to the statutes of 9 nation-states and territories, model laws
promoted by international institutions like UNCTAD and World Bank, as well as drawing upon
the experiences and lessons learnt by various countries. It is scheduled to come into effect in 1
July 2005.
The Law will apply to all business enterprises and professional and trade associations in
Vietnam, overseas enterprises and associations registered in Vietnam, public utilities and state
monopoly enterprises, and state administrative bodies. Where provisions in other enacted laws as
regards restrictive business practices or unfair trade practices, contradict the Law, the latter will
prevail. The Law provides for the establishment, within the Ministry of Trade of Vietnam, as
enforcement entities, of a Competition Administration Authority and a Competition Council,
with defined stature, nature and functions. This is keeping in view that Vietnam is currently
undergoing a comprehensive administrative reform programme, having severe resource and
personnel constraints, thus creating an autonomous body will not be feasible for the time being.
Considering the Ministry of Trade’s expertise and experiences so far on the issues, the
competition authorities are therefore vested with this ministry, and would eventually be evolved
into autonomous bodies when conditions arise.
The Law prohibits five broad types of anti-competitive practices: (1) agreements that
substantially restrict competition; (2) abuse of dominant or monopoly position; (3)
“concentrations of economic power” that substantially restrict competition; (4) acts of unhealthy
competition; and (5) anticompetitive behaviours/decisions by officials or State administrative
agencies, taking advantage of their authority.
Anti-competitive agreements include price fixing, market sharing, production limits,
withholding of investment or technical development, imposition of coercive conditions on other
enterprises for entering into contracts, restrictions on market entry by other enterprises,
agreements to exclude/foreclose non-member from the market, and collusion to award a tender to
a specific party. Except for the last three agreements (all of which are considered to be violations
per se), only agreements between parties holding a combined market share of at least 30 of the
relevant market may be deemed to restrict competition substantially, and thereby prohibited.
The competition authorities will have discretionary power to grant exemptions where
they consider that an anti-competitive agreement’s harm to the economy and competitors is
outweighed by one or more of the following considerations: (i) corporate restructuring; (ii)
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promotion of technical progress and improved quality of goods and services; (iii) promotion of
uniform product variety or quality standards; (iv) unification of conditions of trade, delivery or
payment without affecting pricing; (v) increases in the competitiveness of small and mediumsized enterprises; or (vi) increases in the competitiveness of Vietnamese firms in international
markets. Exemptions may be granted for a definite duration only.
Dominant market position would apply to firms holding at least a 30 market share (or
others that are “capable of substantially restricting competition”). The Law also provides for a
collective market dominant position of firms having a total market share of 50 (for two business
entities), 65 (for three), and 75 (for four) of the relevant market. Dominant firms are prohibited
from selling goods below costs to restrict a competitor; fixing an unreasonable selling or
purchase price or restricting production, distribution, markets or technical development in ways
that harm consumers; applying dissimilar commercial conditions to different firms for the same
transaction; imposing conditions on other firms in sale-purchase contracts or imposing
conditions unrelated to the transaction; preventing market entry by new competitors; and
engaging in “other practices” in restraint of competition as stipulated by law.
Monopoly market position would be deemed to apply to a firm if it has no competitors
for goods it trades or for services it provides. Monopoly firms are prevented from undertaking
any of the activities listed in the previous paragraph pertaining to dominant firms as well as the
following four practices: imposing disadvantageous conditions on consumers; unilaterally
rescinding or replacing a contract with legitimate reason; refusing to transact with or
discriminating against a customer without legitimate reason; and any other prohibited practice
stipulated by law.
No exemptions are available for competitive abuses by either dominant-market or
monopoly firms.
Unlawful concentrations of economic power are defined as any conduct by a firm that
aims to govern the activities of other enterprises, including but not limited to mergers,
acquisitions and consolidations that have this aim. All concentrations in which the combined
market share of the relevant firms would be 50 or more are prohibited except where (1) the result
is still a small or medium-sized enterprise (a concept not defined in the law) or (2) the Prime
Minister grants an exemption. In addition, where the participating parties would have a
combined market share of 30–50, they must notify the competition authorities of the proposed
concentration 30 days in advance. The competition authorities will have 30 days from receipt of
the notification to confirm in writing if the concentration is permitted or forbidden. Failing any
response, the proposed concentration is automatically permitted. In complex cases, the
competition authorities may have up to three 30-day periods in which to make their
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determination. Divestiture measures are provided but only as an ex post remedy to unlawful
concentration cases.
As regard acts of unhealthy competition, the Law prohibits: falsification of commercial
instructions; infringement of business secrets; acts of bribery, inducement or coercion;
defamation of other enterprises; disrupting the lawful business practices of other firms;
advertisements and promotions aimed at unhealthy competition; discrimination within or by an
industry association; and illegal multi-level (“pyramid”) selling of goods.
Competitions issues related to intellectual property rights (IPRs) (e.g. abuse of
dominance caused by possession of IPRs, refusal to deal, anticompetitive licensing practices, etc)
is not stipulated under this Law, however, generally regulated by provisions on IPRs stated in
Part VI (Intellectual Property Rights and Technology Transfer) of the Civil Code adopted by the
National Assembly on 28 October 1995.
The Law also provides procedures and forms for submitting applications for exemptions
to the competition authorities. Detailed explanations are required with an application, and the
competition authorities may request additional data and information from both the applicants and
state bodies and also other relevant organisations and individuals. The Law provides for appeal
by parties against decisions by the competition authorities (whether to higher courts or the
authorities itself) as a development compared to previous draft but is yet to prohibit the
disclosure of business secrets or confidential information revealed to the competition authorities
or other state administrative agencies during consideration of exemption applications.
Besides, the Law stipulates detailed rules and procedures governing complaints,
investigations, interim orders by the competition authorities, consideration of alleged abuses, and
penalties thereof. Either an affected party or the Competition Administration Authority can
initiate complaints, and where the Authority determines it has jurisdiction over an external
complaint (within seven days from receipt of complaint) it must begin an investigation. Here, the
confidentiality of all information obtained must be maintained. An ad hoc five-member
Competition Council is appointed for each case by the head of the competition authorities, and
the council rules on the evidence produced by the investigation and submitted by the affected
parties as well as any expert opinions it or the parties solicit. Within 30 days of receipt of the
investigator’s report, the Council may stay an opinion of insufficient evidence of breach of the
law made by the investigator, request additional investigation or initiate a hearing. The
Competition Council does not have the power to forward a case for criminal prosecution (though
an investigator may). A Competition Council is empowered in cases of breach of the law to
impose fines of up to 10 of turnover; issue warnings; revoke legal permits or certificates;
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confiscate physical proof or means used to carry out the breach; require restructuring of firms or
contracts; or take any other coercive measures to remedy the inflicted harm.
Material compensation would be payable under the Law by any of the following parties:
1. offenders (to either affected parties or the State);
2. state employees or officials who violate the competition law and thus inflict loss;
3. complainants, where administrative preventive measures were applied at their
request without due cause and causing harm to the parties concerned; and
4. the competition authorities, where administrative preventive measures were
applied at the request of an investigator without due cause and causing harm to
the parties concerned.
Prior to the passage of the Law, a Competition Administration Department has already
been created within the Ministry of Trade. This Department, therefore, is expected to be built
into the Competition Administration Authority for Vietnam, and will initially take charge of
drafting all the implementation guidelines for the Law, before starting on its enforcement
mandate.
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Chapter 8
Conclusion
The adoption of the Competition Law 2004 of Vietnam may be regarded as a turning
point in the transition process into the market-oriented economy. This Law will come into effect
from 1 July 2005. It is still early to say how this law can improve the competition situation and
how efficiently it can be implemented. It may take some time for the practical issues emerging
from the new market conditions to answer it. Until now, the implementation guidelines are still
being drafted. Unlike the taxation authority, where with a huge staff covering from the centre to
localities and with the simpler functions, there are still many problems to be solved. Also, it is
still early to see how the competition authority of Vietnam, with a small staff and with too many
functions, not saying about the political pressure, can fulfil gloriously its task. Hopefully, this
law can work consistently with other laws to establish really effective market institutions for
Vietnam.
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